Undervalued Apparel Brands

VF Corp. (NYSE: VFC) is one of the largest apparel companies in the world, with a recent market value near $11 billion.

It has a long history of managing top brands, including Vans, Timberland, The North Face and most recently, through acquisition, the popular streetwear brand Supreme.

After a strong year of growth coming out of the pandemic, high inflation has taken its toll on the company’s financials. Revenue was down 1% year over year through the first half of this fiscal year, with solid growth at The North Face and other brands offset by declines at Vans and Dickies.

As a result, the stock price was recently down 61% this year, presenting an excellent buying opportunity.

By fiscal 2027, management is targeting annualized revenue growth of up to 10%, along with faster growth in earnings per share – in the mid-to-high single digits. H

ow will management accomplish these targets? The company narrowed its brand portfolio from over 30 names to 12, targeting products in high demand, such as outdoor apparel, workwear and streetwear.

VF’s dividend recently yielded a fat 7%, and management plans to return about $7 billion to shareholders through dividends and share repurchases over the next five years. Long-term investors seeking income should give VF Corp. a closer look.

Ask the Fool

Q. What does the term “priced for perfection” mean? – R.W., Palmer, Alaska

A. It’s often used when referring to a seemingly overvalued stock.

It suggests that investors have high expectations for the company, and that their enthusiastic buying has pushed the share price up to a high valuation.

It also suggests some riskiness, because if the company makes any mistakes or there’s some bad news, the stock could take a big hit.

You might avoid such a scenario by favoring “value investing” – seeking healthy, growing companies whose stocks are priced considerably below what you see as their intrinsic value. That builds in a margin of safety, which can reduce your risk if the share price drops.

Q. Are stock dividends really taxed twice? – P.T., South Kensington, Maryland

A. Usually, yes. Here’s how: Imagine that Buzzy’s Broccoli Beer (ticker: BRRRP) reports $120 million in sales.

After subtracting various expenses, it keeps $30 million, which is subject to taxation.

With its post-tax profits, Buzzy’s might build a new factory, buy more advertising, hire more employees, repurchase some of its shares of stock and/or pay dividends to shareholders, among other things.

Any dividends that Buzzy’s pays out are generally considered taxable income for shareholders.

That’s how dividends can get taxed twice – first the company is taxed on its income, and then after it pays shareholders, they are typically taxed on those payments, too.

Some prefer companies to build more value for shareholders without paying out dividends.

For instance, companies might repurchase some shares. Doing so reduces the share count, boosting each remaining share’s stake in the company – and it doesn’t generate taxable income. (Repurchasing shares is wasteful, though, when a stock is overpriced.)

My dumbest Investment

My dumbest investment? Well, it was my first-ever stock investment – a single share of Amazon.com that I bought for $303.

I sold it three months later for $334 and thought I had made a good trade. Lesson learned: Play the long game! – S.O., online

The Fool responds: Looking at Amazon’s stock price now – it was recently at $89 – some might think that you dodged a bullet.

But Amazon split its stock 20-for-1 in June. Shares were trading for around $2,450 pre-split, and if you owned one share then, you’d have ended up with 20 shares post-split, with each share worth around $122.50.

(Splits don’t change the value of your holdings – one share worth $2,450 or 20 shares worth $122.50 each have the same total value. But getting down to a lower price means more investors can afford to buy shares.)

You probably bought your share long before the split, when the stock was on its way up to $2,450.

Hindsight is 20/20, and it’s easy to regret selling the share, but if at the time you didn’t have confidence in Amazon’s potential to grow bigger, selling was the right move.

It can be tempting to sell a stock after it rises a bit and offers a profit, but always do a little research to see if it seems likely to keep growing over many years.