Sometimes you have to be able to look past a terrible day and think about what bargains and opportunities you might be getting.
Take, for instance, the leisurization of apparel. We are in a moment where, because of Zoom (ZM) , nobody cares what you are wearing below your waist, as long as you are wearing something, an important caveat given recent events.
So you have to ask yourself, how do you play this leisurization, something worth thinking about given how there's a word that now captures the zeitgeist.
The obvious way? Jeans. When you are at home and nobody cares how you look, there's nothing more comfortable, save sweats, than jeans. But how do you play jeans? Don't overthink it: Levi's (LEVI) and Kontoor (KTB) , the spinoff of V.F. Corp (VFC) which makes Wrangler and Lee.
Turns out both are terrific for the moment. We recently had Chip Bergh on, the CEO of Levi's , and he was pretty pointed about the opportunity: "There has been a lot of talk about the rise of leisure and everyone is walking around in yoga tights and lounge wear." But, he says, "Denim is still bigger and we define denim." The stock of Levi Strass, which hit bottom in April at $9, has clawed its way back up to $16. Before the pandemic started, the company, arguably was not doing as well as it is now given that it's been able to sell jeans in the e-commerce channel that had been pretty much of nice appendage beforehand.
"The pandemic compressed five or ten years in a short window of the acceleration of e-commerce," and he told us, Levi's has been a big beneficiary. Chip's pretty certain of a good holiday season given that inventory is being managed very tightly. The stock's not one that should be going down with the market given that, sadly, the more widespread Covid, the more people who will not get dressed up, which means jeans.
Levi's isn't the only one that's making sense. I like the upgrade from sell to buy of Kontoor by Bank of America. You may not know Kontoor, a spinoff of VF Corp, but you have seen their product: Lee's and Wrangler. The double upgrade as they call it, came with a lifting of estimates and a bold statement that the street's consensus is too low because of new distribution including 2000 new Walmart (WMT) stores for Lee. Walmart, Target (TGT) and Amazon (AMZN) are among the top partners. The company suspended its dividend, which was giving you a 7% yield, but now, because of the robust business, the report says there is a "high likelihood" of a reinstitution when it reports on Wednesday.
Meanwhile, you might think that Gap (GPS) could be a logical place to go because of jeans. In reality it's a little division called Athleta which is, in reality, not little at all. Deutsche Bank came out last week and said that this division, which did $1 billion in sales in 2019, could to $2 billion sales in sales by 2023. What could change: awareness. Right now the brand has only 53% awareness among active women. The stock's 3% decline at a time when its growth is being aided by Covid is an real opportunity.
Finally there is Lululemon (LULU) . I know that you might find Mathew Boss's decision to raise his price target and add it to JP Morgan's Focus List as ill-advised given the circumstances. You could not be more wrong. Because of the overall market you have an opportunity to buy a stock that he's boosting without chasing it. Boss is looking for 12.4% revenue growth, an astounding figure for apparel, with lots of upside for all of the important lines.
Remember, we don't run for sales if the merchandise isn't hurt by the reason for the sale, we go toward them. And if they are actual beneficiaries of the proximate cause of the decline, we make a stand and we start buying.