With upwards of an 80% run since the start of November, shares of high-end fashion name Ralph Lauren (NYSE: RL
) are acting more like a tech stock than a brick and mortar focused retailer
in recent weeks. Indeed, over that timeframe they’ve easily outperformed the tech focused NASDAQ 100 index, which has only managed to tack on a paltry 5%.
The change in fortunes is a sign of the times, as COVID vaccines continue to be rolled out and investor sentiment shifts from COVID resilient stocks to COVID recovery stocks. This was the message from RBC late last week when they upgraded shares to Outperform from Sector Perform, pointing to the release of almost 12 months worth of pent up consumer demand acting as a major tailwind for the New York based company. In a note to clients, they added "with shares among our biggest laggards in 2020 we see Ralph Lauren as poised for outperformance into 2021 as EPS revisions move higher from margin enhancing activities including lean inventories, pivoting the brand towards direct, and expense management."
UBS struck a similar tone last week as well, as they also upped their rating on shares to Buy from Neutral, and outlined the main factors behind the decision; "we think stocks with these 3 criteria will shine this year: 1) will benefit from transformational changes which have been overlooked by the market due to its focus on the pandemic; 2) sell-side consensus 2021/2022 estimates are too low; and 3) underperformed in 2020. We believe these stocks will have upward EPS revision cycles lasting longer than expected which drive P/E expansion."
All this talk of upward EPS revisions is sure to have investors licking their chops, especially after their last earnings report in October had GAAP EPS surprisingly deep in the red and well below expectations. Since then, shares have gone from strength to strength, with this column also noting Goldman Sachs bullish two notch upgrade of shares last month, for reasons similar to those above.
After setting a post COVID high early last week, shares have cooled a little as they’ve come into contact with a fairly well formed downtrend that’s been waiting for them since January. Many investors who’ve caught the ride up so far will likely be thinking about taking some profits off the table, so don’t be surprised if this weakness continues into the new week. Indeed, if anything, this should be considered a great buying opportunity and make shares all the more attractive.
Longer Term Potential
Having been beaten down so much last year, shares are acting like a spring that’s been released as doomsday scenarios around COVID fail to come to pass. Along with the likes of restaurant stocks and travel names, high end fashion and apparel companies stand to do well in 2021 as Wall Street’s sentiment shifts away from high growth opportunities to recovery opportunities.
In the long run, 2020 could well be viewed as a great year for Ralph Lauren in hindsight, as it forced management to trim much of the fat that’s had shares trending down since 2013. Their Fiscal 2021 Strategic Realignment Plan is up and running, with both headcount and real estate cost reductions expected to yield savings well over the $200 million mark in the first year alone.
The inroads they’ve made into the development of their digital channels will also stand them well over the long run, and make them less vulnerable to any worsening of the current pandemic or arrival of a new one. As shares stabilize after the recent run and break through the resistance that they’re testing right now, investors can expect room to the upside of around 30%. This would put them above 2018’s levels, and at their highest in almost 7 years.
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7 Infrastructure Stocks That May Help Rebuild America
Despite their disagreements (real or imagined) on almost everything, Democrats and Republicans alike love infrastructure projects. These are easy wins for Congressional leaders seeking re-election. And they typically spur job creation, which contributes to economic growth.
With that in mind, it’s ironic that, in the last four years, the United States Congress did not pass an infrastructure bill.
Nevertheless, even with (and maybe because of) the gridlock that looks to be in the country’s future, the infrastructure looks to be on the front burner again. The economic recovery is still far from complete. Unfortunately, neither are America’s roads, energy grid, telecommunications systems, and the like. That means that it would seem like a good policy for a Biden administration to look at an infrastructure bill.
Biden will be under pressure to endorse the $1.5 trillion infrastructure package that the Democrat-controlled House of Representatives passed in July. But the package may need to be tweaked a bit since it currently includes climate change initiatives that have kept the bill from advancing through the Senate.
However, it appears that the economy will need some significant juice after whatever this winter brings in terms of the virus. And if calmer heads prevail (we can always hope), there may be a major infrastructure bill to stimulate job creation. And we’ve identified seven stocks that should bear watching if this comes to pass.
View the "7 Infrastructure Stocks That May Help Rebuild America".