Volatile. Unpredictable. Unprecedented.
The 2020 financial markets were a wild roller coaster ride that had many investors white-knuckling it for several months.
But now as the COVID-19 vaccines roll out across the globe, hope is beginning to glimmer of an eventual end to the coronavirus pandemic and a brighter outlook for 2021. So analysts have looked into their crystal balls to predict where businesses and consumers are headed in the coming year.
Below are their picks for the best stock buys for 2021.
CPRI – Capri Holdings Inc.
Market watchers predict that the first half of 2021 will see a continuation of the athletic trend, as COVID-19 restrictions continue throughout the winter. However, the second half of the year could be a story of revival for fashion purveyors like Capri Holdings (parent to Versace, Jimmy Choo and Michael Kors). Analyst Camilo Lyon of BTIG wrote in a note to investors: “Given the substantial under-performance through much of 2020, fashion should outperform in 2021 (e.g., CPRI) on expectations that both sales and earnings have a steeper upward slope of recovery and multiples remain relatively attractive and thus have room to expand while earnings estimates rise,” he said. Specific to Capri, Lyon noted the company has made operational changes this year that should help it leverage the market shift, including “30%-40% SKU reductions at Kors and Choo coupled with 10%-15% price increases, [and an] increasing mix of higher margin China sales.”
DBI – Designer Brands Inc.
Designer Brands Inc. — parent of DSW and Camuto Group — faced steep headwinds in 2020 as consumers shifted to online shopping. The company also received criticism for being slow to transition its inventory away from dress footwear and toward more pandemic-friendly sneakers and slippers. However, Steven Marotta, an analyst with CL King & Associates, believes DSW’s strength in fashion shoes (plus its ability to respond quickly to trends, thanks to Camuto’s sourcing capabilities) will be a boon once social distancing comes to an end — possibly around the back-to-school season. “People’s desire to socialize has been suppressed for long enough that it’s going to be a bit like a jailbreak,” he said, predicting a Roaring ’20s-esque era of parties, concerts and more. “I think that dress shoes will be concurrent with that. And DBI’s selection and ability to deliver timely, fashionable dress items is second to none of the industry.” He also noted that DBI’s stock is undervalued right now. “When you combine that upside potential with the positive catalysts for the back half of the year, you come up with my pick of the year,” Marotta said.
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DKS – Dick’s Sporting Goods Inc.
While many retailers struggled to entice shoppers amid the pandemic, Dick’s Sporting Goods Inc. has become a go-to destination for consumers who have embraced fitness and the outdoors as an escape from their couches. “DKS’ assortment and strategy are in-line with consumer lifestyle shifts,” said Jane Hali, CEO of investment research firm Jane Hali & Associates, who praised the retailer’s strong omnichannel and digital strategy, particularly its curbside pickup service. And in the months ahead, she predicts more growth prospects under new CEO Lauren Hobart. “We expect DKS to continue benefiting from higher-priced ticket items such as outdoor gear, health and fitness equipment,” Hali said, adding that its private-label collections will be beneficial, as will the retailer’s existing relationships with top performers such as Nike, Crocs and Deckers Brands (parent of Hoka One One and Ugg).
LULU – Lululemon
Though Lululemon’s big entry into the footwear market is still about a year away (the launch is slated for early 2022), the athletic brand has been posting solid gains in recent quarters. For Q3, it logged a 22% gain in revenues to $1.1 billion, and the company recently raised its forecast for Q4. Hali said that looking ahead to this year, Lululemon still has a lot going for it. “The retailer’s strong innovative product assortment, digital strategy, lifestyle community and customer loyalty position the company to outperform in 2021,” she told FN. And then there’s its partnership with at-home workout program Mirror, which LULU acquired last year for $500 million. “We expect the integration of Mirror to be another channel of growth,” said Hali. “The increase in consumers working out at home will benefit the brand.”
NKE – Nike Inc.
The footwear industry powerhouse reinforced its dominant position in 2020, thanks to the heightened demand for sportswear among consumers, as well as Nike Inc.’s strength in the digital space. In its latest fiscal quarter ended Nov. 30, the Beaverton, Ore.-based company reported an 8% increase in sales for the Nike brand, to $10.7 billion. Heading into 2021, analysts believe the Swoosh can deliver even more gains. “NKE continues to resonate with consumers,” said Hali. “The product is strong with a new innovative pipeline bringing increased pricing power.” Furthermore the firm’s Consumer Direct Offense has amped up its connectivity to consumers via more direct selling and digital innovation, at a time when e-commerce has proved vital. “NKE’s digital DTC strategy is building a global powerhouse,” said Hali, adding that the brand has more runway for growth in China as well as in several emerging markets.
VFC – VF Corp.
Market watchers cheered last year when VF Corp. — parent to Vans, The North Face, Timberland and other labels — bought cult brand Supreme, predicting that their joint strengths could net even bigger results than predicted. BTIG’s Lyon sees only upside ahead for the two companies in 2021. “We expect Supreme will be highly accretive to VFC earnings [this year], adding $0.30-$0.40 to [fiscal 2022] earnings,” he wrote in a note to investors. Beyond Supreme, Lyon said he is optimistic about other properties in the VF portfolio, pointing to improvements in inventory at Timberland and new innovations at The North Face. Additionally, he wrote, “We believe the macro headwinds Vans faced earlier this year (e.g., CA closures, slowed innovation, inventory constraints, moderated marketing spend) should turn into tailwinds as the recovery unfolds and VFC resumes investing in the brand.”