Stock of the Week: Sizing Up This 170-Year-Old Apparel Maker

|January 20, 2024

In the shadow of AI and the tech sector… many companies have been overlooked…

Including the one I review in today’s Stock of the Week video.

It’s an apparel brand you’re likely familiar with… and might even wear. It’s the largest brand name in the world.

Its share price has been cut in half since 2021…

But after a false start last year… the stock’s momentum is finally heading in the right direction.

The stock is undervalued… but won’t be for long.

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to watch it.

Transcript

Stock of the Week time, friends, and I have a slightly unusual one for you this week.

Well, you could give it the diversification argument – so you’re diversifying away from just having tech, which is what I’m obsessed with – or you could also give it a slightly different argument, which is the overlooked argument… that there are many companies out there which have just been overlooked under the shadow of tech.

So what is it? Well, it’s a company you’ve probably heard of. I’m assuming you have.

It’s called Levi Strauss (LEVI). You’ve definitely heard of it. In fact, I think I’m wearing a pair of them right now.

It was founded in 1853. I thought it was earlier than that, actually, with the Wild West and all the rest of it.

Now, of course, you know what they sell. I don’t need to tell you all of that.

What you might not know is that they’ve also got Dockers. I didn’t know that was their brand.

What’s particularly interesting about this is, of course, it is the world’s largest brand-name apparel company and a global leader in jeanswear. Its products are sold in more than 110 countries worldwide.

So we’ve got a global play here. And as the world gets richer, brand-name clothing… it’s always going to be up there. And we’re not just talking about… obviously the top end is your Louis Vuittons… but the vast majority of us normal people don’t wear Louis Vuitton necessarily. And so this is where this comes into that whole “mass affluence, global growth” argument.

The market cap is $6.4 billion. Total revenues are about $1.5 billion.

So what attracted me to this multibillion-dollar company?

A few things. So let’s just run through some of the numbers.

My proprietary Growth-Value-Income rating – which looks at the valuation of a company, the revenue growth of a company, the dividend yields of a company – is an 8 out of 10. So, high. Again, my system looks at and weighs valuation, revenue growth, earnings growth and dividend yields.

Forecast P/E is 15. In other words, the share price is at a multiple of 15 times future earnings. It’s neither expensive for a retailer like this nor cheap. It’s neither.

Now, normally, for my GVI Investor subscribers, I would want a CROCI – cash return on capital invested – in the top quartile. Because those stocks, as we know from Goldman Sachs and Deutsche Bank, perform the best. This one misses that target. It has a CROCI of -0.9%.

However, there are other things which compensate for the company, low volatility being one.

But actually, the momentum and the direction of flow is the main thing which attracted me to the company. The moving average convergence/divergence has been oversold because the company has declined from $27 all the way down to about $13. It’s basically had a 50% decline since 2021.

That 50% decline seems to have bottomed out, which has major banks liking the stock as a buy. But I care less about that. And it seems to have bottomed out to the extent that I’m now looking for it to start a new upward trend.

Now, it had a false start before, be warned. In September 2022 till January 2023, it rose and then lost all that ground. Now it’s doing the same again. It’s sort of trying to get back up there… snakes and ladders, sort of… rose, fell. Now it’s trying to do it again, and I’m looking for “second time lucky” this way it does it.

The financials, as I said, do look better, and I think the market appreciates that. On a discounted cash flow basis, the company is undervalued. And earnings are forecasts to grow. Of course, those forecasts are already in the price. So if the company exceeds those forecasts, its share price should rise. Indeed, even if it just meets those forecasts, the price should tag along.

Of course, there are risks. The profit margin with clothing is always a risk. But it caught my eye, particularly the momentum side of things. So I hope you enjoy this week’s Stock of the Week.

And once again, for those of you who might’ve missed it, Happy New Year!

Thank you all very much.