Please ensure Javascript is enabled for purposes of website accessibility

3 Top Apparel-Focused Stocks to Buy in August

By Demitri Kalogeropoulos – Aug 4, 2020 at 7:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's a good time to go shopping in this beaten-down industry niche.

Apparel-focused businesses took a big hit in the second quarter. Unlike retailers that sell staple products like groceries and cleaning supplies, many of these chains were forced to close their doors for several weeks during peak COVID-19 social distancing efforts in places like the U.S. and Europe.

These consumer shopping shifts are likely to pressure traffic in the industry well into 2021, but that doesn't mean there aren't good stock buys in this niche. Below, we'll highlight a few apparel giants that could deliver impressive returns to investors willing to hold through some of the expected volatility ahead.

Three young women shopping.

Image source: Getty Images.

1. TJX Companies

TJX Companies (TJX 1.26%) is the owner of the TJ Maxx, Marshalls, and Home Goods franchises, and through 2019 the off-price retailer has enjoyed 23 consecutive years of sales growth. That streak will end this year, given that pandemic store closures pushed revenue down by over 50% last quarter.

The brand won't stay down for long. TJX Companies came into the crisis period boasting its traditional range of impressive operating and financial metrics. Its value focus has helped it steal market share from full-price rivals, leading to a $10 billion increase in its annual sales base in the four years ended in 2019. The cash-generating strength of the business is clear from the fact that the retailer has raised its dividend in each of the last 24 years.

That's another streak set to end in 2020. However, investors who believe TJX Companies will return to its pre-pandemic strengths should consider buying this stock before that rebound is in the books.

2. lululemon athletica

It's too late to take advantage of lululemon athletica's (LULU 4.49%) 40% stock price slump in early March. But don't let that rebound rally scare you away from this high-performing apparel seller.

Lululemon has demonstrated its ability to grow sales and consistently expand profitability over the last five years, mainly by releasing popular athleisure products to yoga fans. There are at least two other big reasons to be excited about its growth potential. First, there's lululemon's international expansion that gives it plenty of room to boost global share toward levels that rivals like Nike (NYSE: NKE) already enjoy.

A woman holding a yoga pose.

Image source: Getty Images.

Second, lululemon is targeting new, broader demographics outside of its core female niche. The company has already succeeded in areas like outerwear while building a bigger menswear segment. Continued wins in these areas, made easier by TJX's stellar e-commerce platform, could power many more rallies in this stock over the next few years.

3. Target

If the off-price and athleisure niches seem too risky for your portfolio, consider diversifying into Target (TGT 2.29%). The retailer generates roughly 20% of sales from its apparel segment, with beauty and health products contributing an additional 25%. Home furnishings, consumer electronics, and groceries round out the rest of its major niches.

The fact that its stores remained open through the pandemic allowed it to protect its growth streak, and potentially accelerate sales gains in recent months. We'll find out through its earnings report on Aug. 19 whether comparable-store sales increased much above the 1% uptick investors saw in the fiscal first quarter.

Target's multi-channel platform is the real reason to like this stock, as consumers seem to love the combination of a physical store presence in their neighborhoods, plus ultra-quick fulfillment options like same-day delivery. These assets likely drove surging sales gains and rising profitability in the pandemic-influenced selling months of May and June. And those positive retailing trends aren't likely to disappear even after the COVID-19 threat abates.

Demitri Kalogeropoulos owns shares of Nike. The Motley Fool owns shares of and recommends Lululemon Athletica and Nike. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
$292.10 (4.49%) $12.54
Target Corporation Stock Quote
Target Corporation
$151.79 (2.29%) $3.40
The TJX Companies, Inc. Stock Quote
The TJX Companies, Inc.
$62.90 (1.26%) $0.78

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.