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Best Fashion and Apparel Stocks to Invest in for 2020

Posted on Monday, January 13th, 2020 by Matthew Sweeney

Best Fashion and Apparel Stocks to Invest in for 2020

Clothing stocks are issued by companies that specialize in apparel, whether that means designing it, selling it, or some combination of both. We all need clothes and shoes, and the industry is booming—but that doesn’t mean that every clothing or shoe company is a winner with a recognized brand name and solid earnings.

Top Fashion Companies in the World

Some of these apparel companies actually have a decent dividend yield, which means they can be great components to your dividend investing strategy. However, investors should keep in mind that apparel is considered a consumer discretionary, meaning that the performance of these companies may somewhat cyclic in nature. At the same time, these established name brands are no longer risky dollar stocks. They are success stories in the world of fashion and retail, from children’s clothing to athletic apparel.

The Apparel Industry

In olden times, people used to make their own clothing from raw materials like cotton, wool, or hemp—which they would have purchased from nearby farmers, or even grown or sheared themselves. But as economies became more specialized, the industrial revolution accelerated the pace of production and clothing companies were formed.

The availability of a particular clothing item at a mass scale also gave rise to the fashion industry, which really took off in New York City during the early half of the 20th century. Many immigrants opened their own garment factories and enterprising businessmen opened up a new model of shopping called a department store.

Apparel companies attempted to position their clothing and footwear as the best on the market, and after decades of jockeying, several key players emerged as the top names in fashion. Other apparel brands became known as options for consumers with more moderate spending power, or with a need for clothing and apparel that could accommodate their interest in a particular hobby, like sports. These niche areas in fashion created entirely new industries for sporting goods, in turn spawning retail stores that focus on a particular type of fashion merchandise—like Foot Locker, which mainly sells sneakers.

Today, there are hundreds of clothing and shoe brands out there, each one marketing to a different type of customer. These companies make up the apparel industry, and many of them are publicly traded. While clothing is a necessity, apparel can be considered a consumer discretionary stock. During financially difficult times, people can avoid buying new clothes and continue to wear the clothing they already have. Keep in mind that apparel stocks can be impacted by adverse market conditions.

Top Fashion Companies in the World

Here are the top brand-name apparel brands and vendors listed on the stock market. Some are directly listed on the stock exchange, while others have a parent company. Ross and TJ Maxx are clothing outlet stores that sell discounted apparel, some of which is designed by other companies on this list.

Nike (NYSE: NKE) is the world’s largest supplier of athletic shoes and apparel, with revenues of almost $35 billion. The Nike logo is one of the most recognized symbols in the world, and its slogan of “Just do it” is one of the most recognized (trademarked) phrases in popular culture. Nike was founded in the 1960s by University of Oregon track runner Phil Knight and coach Bill Bowerman. The two men sold athletic shoes made by Japanese brand Onitsuka Tiger out of the back of a car at track meets.

Today, Nike sponsors high-profile teams and athletes in a variety of different sports around the world—like Michael Jordan, Serena Williams, and Tiger Woods. Nike continues to retain a special connection with the University of Oregon, partnering with the school’s athletic department for help testing the latest Nike technology and fashions.

H&M (NASDAQ Stockholm: HM) or Hennes & Mauritz AB, as it is fully named, is an international clothier. The company specializes in fast fashion—that is, getting styles from the catwalk of fashion shows to retail locations very quickly, in order to make current fashion trends accessible to consumers of more average means. H&M is the second-largest clothing retail company, just behind Zara, and has a strong e-commerce presence in 33 countries.

H&M first opened its doors in 1947, when it was just a Swedish clothing store for women. The company began to expand throughout Europe, and in 2000, the first US store was opened on the prestigious venue of New York’s Fifth Avenue. As of 2016, H&M reported over $25 billion in revenue.

Zara is a Spanish clothing company owned by the Inditex Group (BMAD: ITX), which happens to be the world’s largest clothing retailer. The Galicia-based retailer has around 20 different collections every year and makes as many as 450 million items annually. Like H&M, Zara specializes in fast fashion, meaning that they move inventory very quickly in response to consumer tastes. In fact, new items are shipped every two weeks—and typically, no more than fifteen days pass between design and arrival on the shelf.

A majority of Zara’s best and most fashionable apparel and accessories are sold in Spain and nearby Portugal, Turkey, and Morocco. Zara’s short clothing cycle allows them to quickly refine clothing to match consumer tastes, which keeps customers coming back for repeat visits.

Louis Vuitton has long been recognized as one of the world’s premier luxury brands. Most famously known for their women’s handbags, LV also sells shoes, watches, jewelry, accessories, and sunglasses. Their high-end products are associated with the rich and famous and connote a certain lifestyle of wealth and luxury. LV products are sold through high-end department stores, specialty retailer boutiques, and through the official Louis Vuitton website. Revenues almost hit $10 billion annually, but as Louis Vuitton is not a publicly-traded company, there is no way for investors to grab a share of this company’s profit. However, you can buy shares of its parent company, LVMH (Euronext: MC), which also makes Hennessy.

Adidas (FWB: ADS) is a German athletic and sports apparel footwear company. It is the largest manufacturer of sports apparel in Europe, and just second to Nike globally. Adidas is also the holding company for Reebok and TaylorMade. Incidentally, Adidas also owns a little less than 9% of Bayern Munich, the German soccer team (or as they call it, football). Adidas had humble beginnings with the Dassler brothers, who created a new type of running shoe with canvas and rubber spikes (instead of metal spikes). They even persuaded Jesse Owens to wear them at the 1936 Olympics.

After WWII, the brothers split up, and one of them went on to form Puma, which became a rival brand of Adidas. Much like Nike, Adidas sponsors athletes and teams around the world, like the New York Yankees, and popular cricket teams in India. Adidas has also built up strong loyalty in pop culture niches like skateboarding and hip hop. Adidas' revenue exceeded 21 billion Euros in 2018.

Ross (NASDAQ: ROSS) is an American discount apparel chain with almost 1,500 stores across 37 states. Its target demographic is reportedly middle-class shoppers, who can find name brand apparel, accessories, and home goods for discounted prices. Ross began as a small chain of stores in the San Francisco Bay Area. It was sold to the founder of Mervyn’s in the 1980s, who expanded Ross to more than 100 stores nationwide and changed its business model to that of selling excess inventory from fashion brands. In the next several decades, Ross continued to expand its number of stores and increase its profit and revenue. As of 2016, Ross revenues have reached almost $13 billion.

TJ Maxx is part of The TJX Companies, Inc. (NYSE: TJX) which also includes Marshalls, HomeGoods, HomeSense, Sierra (in the US), and the Canadian Winners. TJ Maxx, specifically, is a department store with more than 1000 locations across the United States, offering clothing and accessories at slightly lower prices than similar department stores. At the same time, TJ Maxx touts itself as a slightly more upscale option to similar discount venues like Marshalls or Ross.

Some pundits have commented that the booming business of venues like TJ Maxx reflects a change in consumer tastes, who seem unwilling to pay higher prices at more traditional department stores. Many department stores have seen drops in revenue, while clothing stores like TJ Maxx continue to grow. As of 2018, TJX Companies Inc. almost reached $40 billion in sales.

Fashion ETF

Fashions come and go, and it’s almost impossible to predict what will be popular tomorrow. While this can make assembling a seasonal wardrobe difficult, it can make assembling a portfolio of apparel stocks even more challenging. The best analysts on Wall Street could focus on statistics like earnings per share or gross margin, while totally missing a viral trend that gives a specialty retailer astronomical sales growth. On the other hand, you could buy shares of one retailer, thinking that its new line of clothing will be all the rage, and then watch it turn out to be one of the biggest stock losers.

Fortunately, you can buy a share of an ETF, which is similar to a mutual fund. An ETF has a number of diversified holdings like a mutual fund, but you buy into it with shares purchased on the market, instead of depositing money into it (like you do with a mutual fund). Because apparel is a very specific subsect of the retail industry, you may not be able to find an ETF dedicated exclusively to clothing or shoes, but you can buy into a retail ETF that has a prominent percentage of apparel stocks.

The iShares Global Consumer Discretionary ETF (RXI) covers a number of holdings in different verticals. One of them is luxury items and apparel, with companies such as Nike and LVMH (the parent company of Louis Vuitton) appearing in its top ten holdings. As its name implies, the companies forming this ETF are located around the world.

The Invesco DWA Consumer Cyclicals Mom ETF (PEZ) contains a number of diversified holdings in retail outlets specializing in apparel such as Ross, Burlington, and Nike. The “Mom” in the title stands for momentum, as these cyclical discretionaries are viewed as having powerful momentum during cyclic movements of the discretionary market.

The SPDR® S&P Retail ETF (XRT) is another popular retail ETF. More than 50% of its top 10 holdings include retail venues like Children’s Place, Macy’s, Guess, Boot Barn, Gap, and Designer Brands. 100% of its assets are companies located in the United States.

Should I Invest in Clothing Stocks?

Investment advice can never have a one-size-fits-all approach. The decision to invest in retailers that focus on fashion can yield good earnings, but the degree to which investors make that investment will depend on their investment goals. Fashion stocks can offer good earnings and growth, but they are a consumer discretionary that is often cyclical and subject to ever-changing consumer tastes.

Clothing stocks should not make up your entire portfolio, in the same way that you wouldn’t want to entirely rely on cheap stocks to buy for a miracle. The reason is that clothing, shoes, and accessories are not necessary staples for life (like food). Everyone needs clothes, but during tough economic times, consumers will not go out and buy new clothes.

The fashion industry as a whole can be somewhat cyclical. Nonetheless, by owning shares of these apparel companies, you can capitalize on their year-round growth and seasonal success. Fashion stocks might be a good way for investors to add some revenue growth to their portfolio, while stabilizing the downturns with other stocks in more predictable industry sectors outside of retailers, such as consumer staples or banking.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Nike (NKE)$104.53flat0.94%36.55Buy$106.53
H & M Hennes & Mauritz (HM.B)SEK 184.98+0.1%N/AN/AHoldSEK 169.29
INDUSTRIA DE DI/ADR (IDEXY)$17.64flat1.98%27.14HoldN/A
LVMH Moet Hennessy Louis Vuitton (MC)€439.05+1.7%N/AN/AN/AN/A
adidas (ADS)€311.65-0.7%1.07%32.28N/AN/A
TJX Companies (TJX)$62.68flat1.47%24.58Buy$65.39
iShares Global Consumer Discretionary ETF (RXI)$128.65flat1.45%N/AN/AN/A
Invesco DWA Consumer Cyclicals Momentum ETF (PEZ)$56.00flatN/AN/AN/AN/A
SPDR S&P Retail ETF (XRT)$45.88flat1.57%N/AN/AN/A

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