- Hard-hit sectors including retail have made for the best post-pandemic reopening investments.
- Softline stocks will bounce back even higher as consumers look to spend on clothes, UBS says.
- Analysts picked 13 clothing stocks that could continue to profit even when the reopening is over.
- See more stories on Insider’s business page.
For the last few months investors have been playing the reopening trade with great success. Stocks in sectors that spent the last year taking a beating, like restaurants, hotels, and airlines, are way up from their pandemic lows as investors anticipate a return to pre-Covid levels of business.
Some of the hardest-hit companies of the last year were clothing retailers, many of whom had to deal with brick-and-mortar store closures throughout 2020 while customers tightened their purse strings and focused their spending on the essentials. But like other reopening trades, clothing stocks have enjoyed an exceptional 2021. In a recent research report, a team of analysts at UBS that closely follows 36 softline companies pointed out that the average price of the clothing-company stocks they track has risen 35% YTD, while the S&P 500 is up a mere 11%.
As strong as the rebound for clothing retailers has already been, the analysts led by Jay Sole believe that there’s more to come — but only for some stocks.
UBS analysts note that several short- and long-term trends will buoy the entire clothing retail industry. Consumer spending on clothing increased year-over-year in February and March, and research from UBS indicates that the spending spree will only continue to grow for the next two months.
As a matter of fact, UBS data indicates that spending on softline items like clothes and accessories will increase across all income and age demographics for months to come.
In addition, the team predicts that seasonal factors will contribute to a surge in near-term spending. For instance, a survey of US consumers revealed that they plan to spend 21% more on clothing over Mother’s Day weekend than they did last year, while warmer weather this May will add to the gains.
But what about when the reopening trade has been fully played out? Will clothing retailers enjoy sustained success?
According to UBS, some will. The team says that after a “strong, reopening-driven earnings rebound, our view is sentiment will quickly turn bearish once reopening is fully priced in.”
So, the analysts at UBS whittled the 36 softline stocks they watch down to 13 companies that they believe are well-positioned for long-term growth. These companies will withstand the end of the reopening trade thanks to strong brands, adaptability to a rapidly changing retail environment, and growth opportunities.
In addition, the UBS team analyzed each company’s three-year EPS compound annual growth rate for calendar years 2019 through 2022, as well as each company’s P/E estimates for the fiscal year after the next. They came to the conclusion that these stocks have “the best combination of upside to consensus EPS estimates and P/E expansion potential” compared to the other 23 companies the analysts watch.
UBS analysts think that the following 13 clothing stocks will continue to perform well when the narrative changes from “who has most leverage to a spending rebound” as the reopening trade ends to “which companies can lap tough CY21 compares and adapt to retail disruption.”