Can a So-So Company Be a Fine Investment? Absolutely

V.F. Corp. remains the world's largest apparel supplier. Recent results have been disappointing, though, which has pushed the stock price back to levels last seen in late 2011. If fourth-quarter fiscal 2023, which ends March 31, unfolds as expected, the past decade will have been a mixed bag. Sales and dividends will be higher while total outstanding shares shrunk by about 12.1%. Per share cash flow and dividends are less than they were a full decade earlier. Why even think about investing in VFC now? During most of the past 10 years, VFC fetched much higher prices. Annual peaks ranged from $67.10 in 2016 to north of $100 during both 2018 and 2019. Investors often liked the stock at double to triple its current quote. After 44 years of investing, I suspect that they will come back to VFC at the first hint of better news, simply due to the fact that they've seen it trade so much higher. High-quality firms at beaten-up quotes make people comfortable. Recent examples of these kind of rebounds can be seen in Meta Platforms and Netflix , which took huge hits during 2022, but rebounded tremendously in short order. Both companies had major problems last year, but traders were quite willing to jump back in quickly at much higher price points. What Is VFC Worth? Companies like this spawn various price projections. Here is my take, derived from VFC's trading history, on where it will be within a year. A typical price-to-earnings ran about 22.4-times since 2013, accompanied by around 2.3% in current yield. At its Thursday quote of $27.58 those figures were 12.0-times forward EPS along with a well above average 4.35% current yield. Assume VFC can rebound to a closer to normal 18 multiple and it could reach $41.40 by this time next winter. That implies greater than 50% upside potential plus dividends collected along the way. My goal is not far-fetched considering where VFC traded in all recent years. Yahoo Finance typically takes a conservative stance on its year-ahead projections. For VFC it looks for a couple of cents more in EPS over the coming year. 14-times its forward estimate would put VFC at $32.48, 18-times would justify about $41.76 by February 2024. Fast Graphs calls 17.8-times earnings a normalized level for VFC. Its end of this year goal at just 15-times earnings would be $34.20. That is far from an upper limit, but would still represent a decent total return even if that is all VFC does. Morningstar is the most bullish of the research firms I checked in with regarding VFC. It calls VFC's present-day fair value as $61 per share. VFC sits deeply ensconced in Morningstar's 5-star territory and even gets an exemplary rating in terms of capital allocation. One example of that was management's prudent, but unpopular with shareholders, cut of the quarter dividend payment from 51 cents to 30 cents. VFC also presents us with a nice chance to short naked puts out almost two full years at $25, $30 or $35 strike prices. Actual pricing on those is shown below, with VFC at $26.87. Worst-case, forced purchase prices dropped to between $20 even and $24.10. Having a long duration means giving VFC itself and investor sentiment plenty of time to readjust upward. If VFC makes a big jump sooner, you can always close out early, while pocketing a large share of the maximum potential profit. Good-yielding VFC is a mediocre company at an extremely attractive price. Buy some VFC shares, sell some VFC puts or consider doing both.

Can a So-So Company Be a Fine Investment? Absolutely

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