It’s been a rough past month for the S&P-500 (SPY), with the index down 15% in less than 30 trading before Wednesday’s rally.
The continued weakness can be attributed to the view that a 4.0% terminal rate for the Federal Funds Rate may not be enough to bring inflation to its knees, given how sticky inflation has been to date and with supply chain issues remaining in place.
Higher rates result in growth stocks becoming less attractive, given that higher discount rates must be used to discount future cash flows. At the same time, there is a greater risk of a hard landing, which does not paint a rosy picture of 2023 earnings for S&P-500 companies.
However, while many stocks are seeing declining earnings with pressure on profit margins, quite a few companies are bucking the trend, and given the general market weakness, they’ve found themselves trading at extremely attractive valuations.
Two names that stand out are Capri Holdings (CPRI) and Deckers (DECK), which both hail from the apparel industry group and are on track to grow annual earnings per share at double-digit levels this year.
Just as importantly, they’re expected to see new all-time highs in annual earnings per share next year as well. Let’s take a closer look below:
Capri Holdings (CPRI)
Capri Holdings is a global fashion company with three iconic brands: Versace, Jimmy Choo, and Michael Kors. While luxury brands might be considered the last thing that one is shopping for in a recessionary environment, they benefit from a very affluent customer base that’s seeing much less pressure than lower-income consumers to their discretionary budgets.
Meanwhile, from an industry standpoint, the personal luxury goods market continues to grow at an impressive rate. Based on recent research, sales are expected to grow 10% from FY2019 levels this year and are forecasted to increase another 20% from FY2022 to FY2025.
Given that Capri owns some of the strongest brands, it’s in great shape to capture some of this growth. In fact, its long-term goal is to increase total revenue to more than $8.0BB, up from FY2023 estimates of $5.85BB. This is expected to be driven by the following: Continue reading "2 Apparel Stocks Bucking The Trend"