Key insights
- The author identifies Abercrombie & Fitch (ANF) and Gap (GAP) as deep value opportunities in the apparel retail sector, contrasting them with the current focus on AI and space stocks. Key bullish arguments include low valuations (P/E, EV/FCF), clean balance sheets, improving sales trends (especially online), strong brand recognition, and asymmetric upside potential. The author believes these factors are overlooked due to negative macro sentiment, suggesting a potential contrarian play for the US equity market.
Everyone is looking at either AI or Space
and sleeping on really cheap stocks
I picked ANF and GAP for reasons
- These are obviously cheap. Ratios are unreasonably low P/E EV/FCF P/FCF around 10. ANF P/E is like 8 which is a joke. Hard to go lower. Other clothing brands are not trading as low as these ones while performing worse.
Clean balance sheets, low debt, solid income and cash flows despite the challenging macroeconomics. These two are managed much better than other retailers, most of which are dying.
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Trend is good. Their year and quarterly performances trend up, which means they are adapting to macro changes. The headlines always read that people are broke af but the reality is the opposite. The world always adapts to the new normal.
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Big portion of revenue is online sales rather than brick and mortar, which means not burdened with huge debts from leasing store space.
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Consistently recognized as decent brands. ANF 4% US market share GAP 12%, which matter imo because people full stop don't buy when things go "out of fashion" (think LULU)
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They sell casual everyday wear unlike some brands that focus on sportswear (think LULU or NIKE) or specialize (LEVI) or high end fashion, some of these are not doing well right now.
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Their products are not overly expensive.
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People don't hate their CEOs and good brand reputation
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Not SBC heavy like tech. No lawsuits. No heart attacks from -10% in one morning.
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Trading near the bottom. ANF went to $65 last year and pumped 2x. GAP swings $19-29 and entering at $21 seems like asymmetric upside vs downside.
At first I wanted to buy DELL / HPQ / LOGI but I was too late. They already ran up. Actually bought LOGI low at $100 but switched to RDDT after, which I've sold.
Then I looked at KHC but even Buffett screwed up on that one, could be a good buy but I didn't feel confident.
Then I looked at BAC. Again, looked cheap initially but then if Buffett is offloading there must be a reason. Credit crunch or something.
Then I looked at retail and was like, these are CHEAP. Has to be free money. These companies are trading like they won't exist in 10 years but they are doing fine in the worst situation imaginable. This has to be deep value.
TLDR:
Easy 30%+ in <1 year in good old fashion ez pz?
No need to gamble on expensive AI or Space
No need to gamble on the future of SaaS
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positions: $100K+ combined in stocks only