In today's edition of "Talking Stocks," analyst Austin Smith cautions investors against seeing today's lower cotton prices as more meaningful than they are.
While clothing retailers are certain to benefit from this trend at some point, Austin believes the trend itself is fleeting. Prices have fallen so fast that the International Cotton Association has received a record number of arbitration requests. This is a big problem because it encourages farmers to plant fewer seeds next year to control the supply and push prices higher. It's the same tactic we see in the coffee bean space. That means that any clothing retailer that realizes outsized gains from lower prices stand a chance of getting hit again if prices go higher. Instead, Austin suggests sticking with heavily branded quality retailers that have passed on price increases in the past and should thrive in good times and bad.
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