Stock Goldman Clothing Like and you might have missed it

When professional traders from investment houses like them The Goldman Sachs Group NYSE:GS they look for places to put their capital to work, they must have a reliable process behind their selection to make the banks make as much money as they do. Today you can take a look at the “top-down” analysis happening right now behind the screens of these professionals.

Eventually, you’ll understand why the apparel industry may be a good place to draw attention – and investment dollars – to its stock. Plus, the stars are aligned for you today, which is why the names appeal Ermenegildo Zegna New York Stock Exchange: ZGN they are destined to beat all other competitors in the sector. Pay attention to the macro-developments at play; they will come in handy.

With significant upside in sight, markets are willing to bid up the stock, expecting it to hit new highs relatively soon. If your portfolio is worried about upcoming changes in the U.S. economy, especially now that the Federal Reserve is creating uncertainty about interest rate cuts, stay put.

Something not to be missed

According to the latest manufacturing PMI data from the ISM, export orders for the United States increased by 6.4% compared to February. This represents the largest expansionary reading in the entire sector during that measured period, but it also means this.

Inventory levels in the United States have contracted over the month and have continued to do so for some time. So, where will these customers get their products from if the United States has no supplies to satisfy these exports? There is a need to increase manufacturing activity.

This is something Goldman analysts warned you about in their 2024 macroeconomic outlook report, which you can read here. To make U.S. goods more attractive to these foreign buyers, a lower dollar is needed so they can get a decent discount and spur more purchases.

Pricing the interest rate cuts that will arrive as early as May this year, the FedWatch tool al ECM Group Inc. NASDAQ: ECM it’s giving you the catalyst you need to expect this lower dollar value. So why is all this good for the apparel industry?

Lower interest rates (and cheaper money) typically stimulate consumer discretionary purchasing activity. This may be one of the reasons why the SPDR fund for selected consumer discretionary sectors NYSEARCA: XLY has performed so well lately, rallying as much as 26% over the past twelve months.

Returning to the PMI, the apparel industry is now leading the pack in a turnaround in terms of expansion, showing accelerating growth data for two of the last three months. This is enough to attract the attention of operators to the sector, but why Zegna and not, let’s say, a competitor like him? Columbia sportswear NASDAQ: COLM?

Here because

The majority of Columbia’s revenue (65%) comes from the United States alone, meaning a lower dollar value could have a negative impact on its revenue. Of course, this effect could be offset by a resilient U.S. consumer shopping spree with cheaper financing, but why take that risk?

On the other hand, Zegna’s revenues are made up mostly of international sales. Up to 76% of sales are split between Europe and Asia, with Italy and China as the main consumers.

Mega investors like Michael Burry and Ray Dalio are slowly moving towards China’s comeback, especially now that inflation has exceeded expectations last week. This means that Zegna can expect increased sales (on stronger currencies in case of a potential decline in the dollar) in the coming months.

Knowing what you know now, it shouldn’t be surprising to learn that Goldman analysts have improved their price targets on Zegna. Targeting a valuation of $18.7 per share, they directly indicate nearly 30% upside from where the stock is trading today.

Valuing the stock at a huge premium over the rest of its apparel peers, markets think this stock could see a fair amount of upside in the coming months. A price-to-earnings (P/E) ratio of 28.9x puts Zegna at a 91% premium to the industry’s average P/E of 15.1x.

Remember the saying “It has to be expensive for a reason” because it applies here too. Expecting earnings per share (EPS) growth of 20% over the next twelve months, analysts believe this will be the stock that can outperform the average 13% EPS growth expected by the industry today.

Naturally, markets are bidding this stock above Columbia’s 21.8x P/E, willing to pay a higher price for the impending increase in international sales, as well as positive guidance from management. Don’t argue with the tape.

Before you consider CME Group, you’ll want to hear this.

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