In this series of articles, I will be taking a look at various industry sectors and selecting what I believe will be outperforming stocks for 2015. In Part 1, I reviewed 47 stocks within the Aerospace and Defense industry sector. For Part 51, in determining my favorite stocks in this sector for 2015, I will review the following Textiles and Apparel stocks:
- Carter's (NYSE:CRI)
- Cherokee (NASDAQ:CHKE)
- Coach (COH)
- Columbia Sportswear (NASDAQ:COLM)
- Crocs (NASDAQ:CROX)
- Culp (CFI)
- Deckers Outdoor (NASDAQ:DECK)
- Delta Apparel (NYSEMKT:DLA)
- Fossil (NASDAQ:FOSL)
- G-III Apparel Group (NASDAQ:GIII)
- Gildan Activewear (NYSE:GIL)
- Hanesbrands (NYSE:HBI)
- Iconix Brand Group (NASDAQ:ICON)
- Kate Spade (NYSE:KATE)
- Lululemon Athletica (NASDAQ:LULU)
- Michael Kors Holdings (NYSE:KORS)
- Movado Group (NYSE:MOV)
- Nike (NYSE:NKE)
- Oxford Industries (NYSE:OXM)
- Perry Ellis International (NASDAQ:PERY)
- PVH (NYSE:PVH)
- Quiksilver (NYSE:ZQK)
- Ralph Lauren (NYSE:RL)
- Rocky Brands (NASDAQ:RCKY)
- Sequential Brands Group (NASDAQ:SQBG)
- Skechers (NYSE:SKX)
- Steven Madden (NASDAQ:SHOO)
- Superior Uniform Group (NASDAQ:SGC)
- Tumi Holdings (NYSE:TUMI)
- Under Armour (NYSE:UA)
- Unifi (NYSE:UFI)
- V.F. Corporation (NYSE:VFC)
- Vera Bradley (NASDAQ:VRA)
- Vince Holding (NYSE:VNCE)
- Wolverine World Wide (NYSE:WWW)
The first step I took to narrow down the list of possible options was to look at the earnings over the past five years of these stocks within the industry sector. I removed the following stocks from further review because of their negative earnings growth over the past five years:
- Delta Apparel
- Kate Spade
- Perry Ellis International
- Sequential Brands Group
- Vera Bradley
I then took the list of remaining stocks and checked the revenue growth of each over the past two years. I am removing any stocks that had flat (less than 3%) growth or saw a decline in revenue over the past two years. These stocks include:
My next move was to examine the trailing PEG ratio of each of the remaining stocks. I removed any stock that had a PEG ratio over 2 to focus more specifically on fairly valued/undervalued stocks. These stocks included:
- Lululemon Athletica
- Movado Group
- Oxford Industries
- Ralph Lauren
- Steven Madden
- Tumi Holdings
- Under Armour
- V.F. Corporation
The next set of data I reviewed was the Fundamental and Value Scores for each of the ten remaining stocks. These scores are calculated by YCharts and I have found them to be very useful when researching investment options. More details on each of the scores can be found here and here.
|Fundamental Score||Value Score|
|G-III Apparel Group||10||5|
|Iconix Brand Group||8||9|
|Michael Kors Holdings||9||10|
|Superior Uniform Group||9||4|
|Wolverine World Wide||10||7|
To determine the best stocks for 2015, I'm only taking into consideration stocks that have values of 8 or higher for both fundamental and value scores. Doing this, left me with the following remaining stocks:
- Deckers Outdoor
- Michael Kors Holdings
- Skechers USA
My next step was to look at the book value of each company and to remove any stock that has seen a decrease in its book value over the past five years. The only stock to have seen a decline in book value during this time period is Iconix Brand Group.
I then looked at the remaining stocks and only included stocks with earnings yields of 5% or higher in my final analysis. These stocks include:
- Deckers Outdoor
- Michael Kors Holdings
My next step was to look closer at each stock remaining that passed all previous criteria and determine whether or not there were any reasons to eliminate them as great stock candidates for 2015. In doing so, I reviewed the financials of each company, the most recent quarterly report transcripts, and searched for any news items that warranted concern.
For its latest quarter, the company posted a 16% increase in revenue and an increase in earnings per share from a loss of $0.08 to a positive value of $0.04 per share compared to the same-period last year.
The company has seen significant growth with several of its brands:
- UGG - 9.7% sales growth this quarter
- Teva - 13.4% sales growth this quarter
- Sanuk - 27.9% sales growth this quarter
With growth both domestically and internationally, I feel that Deckers will remain a solid long-term option, but with soft forward guidance (the company expects an earnings loss of $1.52 per share next quarter), I don't believe that this stock will perform well this year.
Michael Kors Holdings
In its latest quarter, the company reported an 18% increase in revenue and a 15% increase in earnings per share compared to the same-period last year. While the overall revenue/earnings growth was solid, the main problem came with its 5.8% decline in comparable store sales. The comparable store numbers are not nearly as bad when factoring in a constant currency.
I believe the market overreacted to the company's latest earnings report, considering the results were somewhat expected, with revenue in line with guidance and an earnings per share miss of just 1 cent. The stock dropped 24% the day after the earnings report and has been fairly flat since then with a 3% increase since May 27th.
For its last quarter, the company posted a 4% decline in revenue and an increase in earnings per share from $1.47 to $1.50 compared to the same-period last year.
With strong brands consisting of Calvin Klein, Tommy Hilfiger and Van Heusen, I feel that PVH remains a solid long-term option, but with fairly weak quarterly results, flat revenue from its core brands of Calvin Klein and Tommy Hilfiger, I feel that the stock is currently overpriced.
PVH remains more expensive based on both forward and trailing PE ratios compared to both Deckers and Michael Kors. With expected guidance of flat revenue on a constant-currency basis (8% decline on a GAAP basis) in the next quarter, I believe that PVH has a very limited top in terms of price appreciation this year, and would be surprised if it outperformed the market over the next six months.
Out of this group of stocks, I really don't like any of them in terms of solid picks for significant price appreciation for the remainder of this year. I like PVH the most in terms of a long-term position, but I feel that Michael Kors has the best chance of outperforming the market on a short-term basis.
Looking at the chart below, you can see that Michael Kors is significantly undervalued compared to several of its competitors.
KORS PE Ratio (TTM) data by YCharts
I believe that if the company can outperform expectations in one of its upcoming quarters, then the stock could see a very significant bump in its price, primarily due to the overreaction from its prior quarterly results.
For Part 52 of this series, I will be reviewing the Trading Companies and Distributors industry sector. As always, I suggest individual investors perform their own research before making any investment decisions.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.