We recently published a list of 10 Best Clothing Stocks To Invest In Now. In this article, we are going to take a look at where American Eagle Outfitters, Inc. (NYSE:AEO) stands against the other best clothing stocks to invest in now.
While the inflation figures have come down a little, they are still sticky. More consumers, even at higher income levels, are gravitating towards discounters. The reason is simple: prices are still higher than what they used to be. On November 26, Dana Telsey of Telsey Advisory Group appeared on CNBC to discuss the potential implications of Trump’s proposed tariffs on consumer prices and margin challenges for retailers.
She said that if the tariffs do come to fruition, the apparel industry will certainly be impacted. It is estimated that up to $80 billion in consumer spending could be impacted, which would require a double-digit increase in prices for some of the apparel goods.
Retail stocks are taking center stage with holiday shopping kicking off. However, the consumer spending front presents a dichotomy. While one side shows healthy consumer spending, the other side presents stretched credit and consumer spending patterns showing an increasing inclination for discounts.
On November 28, John San Marco, Neuberger Berman portfolio manager, joined CNBC’s ‘Closing Bell Overtime’ to discuss the recent trends in the retail sector. Listing how this season is different from the past few years, he said that real wages have been positive for a while now, with significant cohorts of consumers holding balance sheets in pretty good shape, particularly homeowners. There hasn’t been a discretionary comeback yet. Without any significant market disruption, he believes the season will see the consumer behave in a healthier fashion moving forward.
A significant consideration in the current holiday shopping season is whether retail investors should be concerned about a dynamic where some retailers bring inventory into the US ahead of the tariffs. Since this holiday season is expected to be relatively shorter, the retailers might have to discount their inventory to avoid having their warehouses too full.
Marco said that tactically figuring out the inventory inflow is complicated, made much more challenging by the volatility surrounding the election and the weather conditions. Some retailers may be able to capitalize on the situation’s unpredictability and buy stuff opportunistically. However, Marco is of the opinion that a premium on high-quality retailers that offer an unbeatable consumer value proposition is paramount.
On November 28, ‘Fast Money’ traders appeared on CNBC to discuss what to expect from retailers with the holiday season kicking off. Viewing the American retail sector through the lens of stocks soaring at all-time highs, the 2024 holiday season looks pretty positive.
However, there is another side to that coin as well, as some stocks are sinking to lows. Credit card debt is approaching $1.2 trillion, and delinquency rates are at a 13-year high. The situation thus presents a bifurcated retail environment. Despite this bleak side of the coin, people are feeling great about things at the present.
With a number of major events now in the past, people believe they are getting closure. The overall environment is simmering down, which is a tailwind for confidence in the analysts’ opinion. Agreeing with these points, Karen Finerman, Co-founder and CEO of Metropolitan Capital, said that markets and people both hate uncertainty. She believes that the market has risen a lot, and several other positive factors are making people feel better. Most retailers are positioned well on an inventory standpoint and can get good margins. She is thus comfortable with the current retail setup.
A close-up of a customer trying on a stylish Aerie item, smiling with satisfaction.
For this article, we used the Finviz stock screener to identify around 15 clothing stocks and narrowed our list to 10 stocks with the most positive analyst upside from current levels. We also added the number of hedge fund holders for each stock, as of Q3 2024. The stocks are arranged in ascending order of their upside potential as of November 29, 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Analyst Upside: 21.10%
Number of Hedge Fund Holders: 31
American Eagle Outfitters, Inc. is a global specialty retailer that offers clothing, accessories, and personal care products. Its brand portfolio includes American Eagle and Aerie brands. American Eagle operates as a jeans and apparel brand, while Aerie offers lifestyle items such as apparel, intimates, activewear, and swim collections.
The company operates stores in the US, Canada, Hong Kong, and Mexico, and has license agreements with third parties to operate stores throughout Asia, Latin America, Europe, and the Middle East. American Eagle Outfitters, Inc. also operates Todd Snyder New York, a premium menswear brand.
American Eagle Outfitters, Inc. is continuously executing its strategic plans for the year, powering profitable growth, strengthening its operating capabilities, and driving shareholder value. It holds the ability to track and pivot into emerging trends and categories, positioning itself as one of the top jeans line for its targeted core customer aged 15 to 25. The company’s targeted brand strategies are resulting in a positive growth momentum across all its brands. American Eagle Outfitters is on the path to deliver value for customers in the coming seasons.
The company is offering trend rate collections and new marketing initiatives as part of its brand strategies to continue delivering strong results. Much of its brand growth was attributed to staying disciplined on inventory and chasing into fan favorites profitably, contributing to higher merchandise margins.
It is also continuing its core focus on expense discipline across the organization. In addition, its focus on greater efficiencies is yielding resulting, driving shareholder value.
Overall, AEO ranks 7th on our list of best clothing stocks to invest in now. While we acknowledge the potential of clothing stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AEO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
