This article will examine the best clothing stocks to buy in the U.S. stock market. Clothing stocks must be invested in with great caution. Historically, new clothing stocks burst onto the market and run up very quickly, only to fall just as quickly as demand sours.

While clothes are essential to modern-day life, they are effectively a commodity. That means the only way for clothing stocks to distinguish themselves is by design and marketing.

However, the very thing that the top clothing stocks must do is also the thing that can undermine them. Consumers are very fickle when it comes to style and design. What may be hot today might be ice cold tomorrow.

So the challenge in choosing solid clothing stocks is not to chase the hot new styles, but to choose ones that have a history of constantly reinventing themselves, and staying ahead of style trends. You can also find valuable clothing stocks by checking out companies that cater to meat-and-potatoes consumers.

The Best Clothing Stocks For 2019

If you’re in a hurry, below are our top picks for clothing stocks as of today.

1. Nike: Long-term track record of constant reinvention and category dominance.
2. Carter’s: The leader is children’s clothing shows no signs of a slowdown.
3. Nordstrom: Despite a profit miss, the high-end clothier has a devoted base.

Continue reading to learn more about each of these stocks!

What Are Clothing Stocks?

Good clothing stocks are driven either by offering a consistent, base set of products or by specializing in one particular type of clothing.

There are millions of people who just need the basics – things like jeans, T-shirts, button-down shirts, and other staples of casual wear. People who live in American suburbs or rural areas focus their attention more on living an everyday lifestyle. That’s not to say they aren’t style-conscious or like formal wear, it’s just that life in major cities is different than in the heartland.

Beyond the basic clothing stocks, there are many different specialty clothiers. There are companies that specialize in men’s suits, big and tall, sportswear, women’s sportswear, oversized individuals, children’s wear, toddler clothing, formal wear, upscale, luxury – the lists go on and on.

There are also trendy clothing stocks, and those are the ones to look out for. The market is littered with companies that got a lot of heat and grew sales very quickly, and then consumers lost interest, and the stocks cratered.

The best clothing stocks, then, are the ones that have been around a long time. Slow and steady wins the clothing stocks race.

Read Also: What are the best airline stocks?

How Do You Determine What Qualifies As The Best Clothing Stocks?

The best clothing stocks usually have these three characteristics:

1. Reliable, but not always growing, net income
2. Reliable, but not always growing, positive free cash flow
3. A dominant brand name

Reliable, but not always growing, net income

One would expect that a clothing stock should have reliable net income. However, because of constantly fluctuating demand for clothes, and for specific types of clothes, it can be tricky for a company to properly manage marketing and inventory.

Clothing company management can examine all kinds of sales projections, and then deploy advertising and marketing dollars in an effort to sell product to meet those expectations. That also means that they must properly manage inventory so as not to manufacture too much or too little product.

Demand can literally turn on a dime, as well. If a company expects a very cold winter, and produces tons of warm clothing, and then the winter is suddenly warmer than expected, that could harm expenses and revenue.

Thus, net income should be reliable, but one cannot expect it to grow at a certain rate year after year.

Reliable, but not always growing, positive free cash flow

Cash flow for a clothing company is its life. Cash flow is used to expand store footprint and internet presence. It is used for working capital and to manufacture product.

Cash flow is going to fluctuate from quarter to quarter and year to year because of all the reasons already mentioned. It can be very tricky to determine demand.

Additionally, if a company plans to expand aggressively, and then hits several quarters of unexpectedly low demand, it may have to scuttle those plans if there isn’t enough cash flow.

Cash flow statements are included with every financial report. First look for line that reads “operating cash flow’. After that, you will find “capital expenditures”. If you subtract that from operating cash flow, you get free cash flow.

Free cash flow is used for all of the above purposes. We want to see positive free cash flow just about every year.

Dominant brand name

The final characteristic that permits a company to be one of the best performing clothing stocks is having a dominant brand name. Consumers buy from brands they trust. When given a choice between a known brand and a new store, consumers will choose the brand.

A dominant brand name also means, almost by definition, that the company has been around a very long time, understands what consumers want and expect from it, and cater to it. The brands also got to where they are by having strong net income and cash flow each year.

Here’s a video that gives additional information on investing in the most valuable clothing stocks.

Nike

Nike crosses the finish line in the #1 position for the best clothing stocks.

Nike management has, over the course of decades, proven that it not only has its finger on the pulse of the core activewear market, but also continuously reinvigorates its brand.

Management has a keen eye and advertising brilliance. Consequently, Nike not only sets activewear fashion trends, it also becomes the brand that others follow to keep up. That’s an enviable position.

It has become a recognizable, high-quality global brand name that is difficult to push off the altar.

It has maintained solid profits throughout its history, as well as cash flow. It’s also a good example of why even the top clothing stocks are going to have fluctuating profit and cash flow over the years.

Its $3.27 billion of net income in 2014 hit $4.24 billion in 2016, but back to an adjusted 2017 profit of $3.6 billion (after accounting for the changes in income taxes from the tax cut).

Most recently, Nike generates between $2.28 billion and $3.9 billion in free cash flow each year, as a result of its repeatedly strong profit.

To top it off, Nike keeps a lid on its debt, and has maintained more cash then long-term debt for several years running.

Carter’s Inc.

 

Believe it or not, Carter’s was founded way back in 1865. It has a long and established history as the premier childrenswear clothing stock.

Carter’s has mastered the art of being a go-to choice for a category that never runs out of customers. There will always be children born in the United States and Canada, and those children will always need clothes. Thus, Carter’s has maintained a business of selling high quality kids’ clothing at low prices.

It not only has its own 466 stores in the U.S. but 131 OskKosh stores, as well, and sells clothes under all of the following lines: Carter’s, Child of Mine, Just One You, Precious Firsts, Simple Joys, OshKosh, and Skip Hop.

Carter’s is presently in a growth phase, and its net profit of $192 million in 2014 grew to $235 million the next year, to $256 million in 2016, and to $300 million in 2017.

Free cash flow is consistent and robust. Carters is one of the most valuable clothing stocks because it produces between $300 million and $400 million in free cash flow annually.

Nordstrom

 

Our last of the winning clothing stocks is Nordstrom. Luxury retailers like Nordstrom have a big advantage over other clothing stocks: affluent consumers.

This demographic has more disposable income than consumers for other down-scale brands. Thus, they have more pricing power.

Nordstrom produces a lot of high quality clothing and accessories, and is known for attentive salespeople. Shopping is more of an experience. That’s one way Nordstrom distinguishes itself from other luxury brands, and it has earned it a loyal following.

Even though Nordstrom delivered a disappointing earnings report, it remains a great company. Profits are going to fall short from time to time, but that doesn’t mean a clothing stock is necessarily in trouble.

Nordstrom’s earnings have been declining over the past few years but it remains a very profitable company. It has generated over $750 million in free cash flow over the trailing twelve months.