VF stock is a turnaround story hidden in plain sight

Today’s stock market is not what you may have become accustomed to from 2020 to 2023. For most of that time, tech stocks have dominated the country thanks to their hypergrowth projections and attractive propositions. The epitome of this market preference can be seen in the price action NVIDIA NASDAQ:NVDA. The stock has continued to surpass all-time highs to trade at a whopping P/E ratio of 95x.

So where can further upside be found after the S&P 500 and NASDAQ indexes both hit all-time highs? Well, you can see some room to squeeze returns by spreading performance across SPDR Technology Select Sector Fund NYSEARCA: XLK against the SPDR fund for selected consumer discretionary sectors NYSEARCA: XLYwhich would correspond to a large gap of 27.4% in favor of technology.

It should also be considered that the Fed will likely cut interest rates this year, which, according to the FedWatch tool of ECM Group NASDAQ: ECM, it could arrive as early as May. As rate cuts become imminent, large investors and traders may start trading for turnaround plays within consumer discretionary names as they tend to do well during low interest rate environments. Here because VF New York Stock Exchange: VFC it could quickly become a prime target.

The story fits

Remember that the narrative here focuses primarily on turnarounds. This is where you look for a trend that is rapidly entering potential expansion after a short – or sharp – period of contraction.

Want to know how big players on Wall Street choose industries and sectors to invest in before moving? Here’s the beginning. After a “top-down” research process, you can start by examining the trends of the ISM manufacturing PMI index. This will make it very clear to you why clothing stocks might be in play today.

In November and December, the apparel and textile sectors experienced sharp contractions, which could be attributed to the seasonality of the sector. However, this was more of a desperate attempt to clear out the accumulated inventory.

You have received emails with discounts of up to 40% from Ralph Lauren NYSE:RL? Because it was just one of many brands that tried to move items out of their stores. The fight may be over for these names, as major PMI trends have taken a wild turn in early 2024.

In January, the apparel industry recorded the highest growth among the 18 sectors tracked by the report. In second place, textile mills also saw expansion, which is true as they will likely pump out more materials to accommodate the new turn for their apparel customers.

This is where things get a little more complex. While most retail investors and traders will focus on the bigger names like Abercrombie & Fitch New York Stock Exchange: ANFthe real juice – worth squeezing – is found in names like VF and even FootLocker NYSE:FL AND Under armour NYSE: UAA.

How to choose them

Abercrombie shares have grown their earnings per share by a decent 46.5% over the last twelve months. That’s why you can disqualify this stock from your turnaround suspicions. Analysts expect this stock to grow its EPS by just 6.4% over the next twelve months, which is significantly slower than the company’s growth last year.

This may be why these same analysts see a net downside of 36.9% from today’s prices, based on their stock price target of $69.4, far from a turnaround.

For Foot Locker and Under Armour, there are signs of a potential turnaround as both are turning the EPS contraction of the last twelve months into an expansion for this year. Foot Locker reported an EPS decline of 31.8% over the past twelve months, while analysts expect growth of 48.2% this year.

With a per-share price target of $26, however, Foot Locker analysts see 11.3% downside in that stock.

Under Armour’s earnings have declined 18.3% over the past year, and analysts are rewarding this name with a 22.4% upside for the next twelve months to give you another turnaround perspective. For reasons backed by Wall Street, analysts are more bullish on this name with their stock price target of $9.9, implying a 22.6% rally from today’s price.

Now, why and how is VF a better choice here? With an EPS decline of 14.1% last year, analysts believe 2024 could be very different with growth of 28.1%. A price target of $18.7 per share also offers potential upside of 22.2%; so far, nothing stands out from other competitors except this one.

Price-to-book valuations for Foot Locker and Under Armor are 0.9x and 1.7x, respectively, lower than the industry average of 3.1x. Remember the saying, “It has to be cheap for a reason.” Don’t put yourself at risk of finding out what this reason is. Instead, take a look at this.

VF shares are trading at 3x P/B to align with the rest of the industry, meaning markets are more accepting of analysts’ proposed potential turnaround in the company’s EPS and price targets. As you may know, perhaps due to painful mistakes, you should never fight the market.

Before you consider Abercrombie & Fitch, you’ll want to hear this.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Abercrombie & Fitch wasn’t on the list.

While Abercrombie & Fitch currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here