The bear market has hit investors of all stripes hard. Of the S&P's 11 sectors, only energy is up this year, and all three major indexes have entered a bear market, though the Dow Jones Industrial Average has rebounded rapidly since the beginning of October thanks to strong corporate earnings and hopes for a Federal Reserve easing of interest rate hikes.
Though stocks soared on the recent inflation report, most economists expect a recession sometime next year, meaning investors might not be out of the woods yet. If you're looking for a stock to carry you through the bear market and beyond, one overlooked company that's worth buying is VF Corp. (VFC 0.19%), a diversified manufacturer of apparel, footwear, and accessories that owns brands like Vans, The North Face, and Timberland, among others.
The company is more than 100 years old, and is a Dividend Aristocrat, having increased its payout annually for 48 years.
What VF has to offer
Like most consumer discretionary stocks, VF has fallen sharply this year, down nearly 60% after diving in September when the company cut its guidance for the year and said it would take a $300 million to $450 million impairment charge on its acquisition of the Supreme streetwear brand.
VF is still facing headwinds from the macro environment. Inventories jumped 88% year over year in its most recent quarter, though that it partly due to a decision to take ownership of its inventory while in transit.
The company also cut its guidance, and now sees earnings per share (EPS) of $2.40 to $2.50 for the fiscal year, down from a prior range of $2.60 to $2.70.
While none of that is particularly encouraging, those challenges are more than priced into VF's stock, which trades at a price-to-earnings ratio of just 12. And those earnings are temporarily repressed due to the stronger dollar and those aforementioned macro headwinds. In fiscal 2022, which ended in the spring, the company reported adjusted EPS of $3.18, and it should be able to get back to that level once the economy starts to improve.
Perhaps the best reason to buy VF stock is that you can sit back and collect its 6.8% dividend yield while you ride out the bear market.
The path ahead
At its Investor Day conference in September, the company outlined its growth targets for fiscal 2027. It expects revenue to grow at a compound annual rate in the mid to high single digits, and sees an operating margin of 15%, up from 12.3% in its most recent quarter, since it expects to expand its gross margin and to gain leverage on selling, general, and administrative expenses.
Factoring in dividends and share buybacks, it's targeting total shareholder returns in the low double digits to low teens, which likely means somewhere between 10% and 14%.
To achieve those goals, VF said it will innovate within its existing brand portfolio, accelerate its investments in the direct-to-consumer channel, build early-stage brands, and allocate capital and talent to top strategic and growth initiatives.
If the company can achieve those goals, the stock should deliver strong returns over the next five years. Operating profits could nearly double in that time if it hits the high end of its guidance, and with the benefit of multiple expansions, the stock could triple or do even better. And that's not even considering the nearly 7% dividend yield, with payouts that will likely continue to grow.
Executing on that long-term guidance isn't a given, but the company has a stable of brands (some of which have been around for generations) that are leaders in niches like outdoor clothing, skate clothing, and workwear.
VF has stood the test of time, as its Dividend Aristocrat status shows. Take advantage of the sell-off to get this rewarding combination of income and growth.
