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A Good Time to Buy Textile Stocks?

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There’s a kind of a hush in the market right now with the FOMC meet starting today. But that doesn’t mean we should forget the holiday season, or the bounty that it inevitably brings. After all, some segments of the market have their strongest season about now.

And since this is when we spend the most on clothing, home furnishings, etc and winter months also bring fresh demand for winter wear, bedding and so on, the last few months of the year are the strongest for textile producers.

Textiles have evolved over the years, in terms of the varieties available today, the degree of their “smartness” and the production methods used.

Some of us might still remember our mothers stitching something or the click of granny’s knitting needles, but younger folks are unfamiliar with these things. They’ve grown up with the latest and trendiest of things they picked up at a clothing chain or department store. And more automation is on its way here, as unheard-of things like sewing bots are making their way to production lines.

A number of things are changing on the material front as well. A certain section of the public, being more environmentally conscious, have a preference for sustainable materials and natural fibers like cotton. But there’s also growing demand for things like polyester because of its durability, wrinkle resistance and quick-drying qualities. So this segment of the market looks particularly attractive right now.

A grandviewresearch report  projects that the global textile market will grow at a CAGR of 4.4% from 2021 to 2028. It also offers insight on the U.S., which is one of the largest textile producers and raw-cotton exporters, as well as the top raw-textile importer.

The main driver of the U.S. textile industry is fashion, as fast-changing fashionable trends are easily adopted because of the mushrooming of online fast fashion companies. The pandemic and resultant social distancing followed by supply chain constraints have been a drag on materials consumption. But things are reversing this year, so the market is expected to continue on an upward trajectory through 2028.

Smart textiles, using optical fibers, metals, and various conductive polymers that interact with the environment and react to mechanical, thermal, or chemical and electric stimuli, are gathering momentum, opening up opportunity in technical applications.

The U.S. technical textiles industry is one of the largest in the world. This segment is expected to be a major driver of growth between 2021 and 2026. Technical textiles are mainly non-woven and may be disposable (absorbent hygiene, wipes, filtration, medical and surgical and protective apparel) or durable (geo-synthetics, home and office furnishings, transportation, building construction, and other durables). Their lightness, durability, efficiency and cost-effectiveness are expanding their use cases to non-traditional areas like construction, autos, medical, packaging and many more.

So we have one big bucket in apparel and a smaller, fast-growing one in specialty textiles.

Here, I’ve picked stocks from three Zacks-classified textile industries, all of which are in the top 10%. As you know, stocks in the top 50% of industries have a strong chance of beating the bottom 50%. They have a stronger chance of near-term upside, especially when carrying Zacks Buy (#2) or Strong Buy (#1) ranks. These and other factors discussed below, make these stocks worth buying today.

Unifi, Inc. (UFI - Free Report) , is the first one in line. The company, which is a leading innovator and manufacturer of synthetic and recycled performance fibers, has transformed more than 10 billion plastic bottles into recycled fiber for new clothing, shoes, home goods and other consumer products.

It seeks to meet consumer demand in several respects, including moisture management, thermal regulation, antimicrobial quality, UV protection, stretchability/elasticity, water repellency and enhanced softness. It collaborates with many of the world's most influential brands in the sports apparel, fashion, home, automotive and other industries.

The Zacks Rank #1 stock belongs to the Textile – Products industry, which is in the top 2% of Zacks-classified industries.

Both revenue and earnings are expected to grow double-digits in the current fiscal year ending in June. This will be followed by another strong year of growth. Given the company’s focus on specialty textiles, the environmental impact of its offerings and its collaborations with leading brands, demand for its products should be sustained.

It beat September quarter estimates by 53.3%. The estimate revisions trend is also encouraging. The 2022 earnings estimate has increased 5 cents (3.7%) in the last 7 days while the 2023 estimate has increased 9 cents (5.7%).

Within the Textile - Home Furnishing industry, which is in the top 7% of Zacks-ranked industries, there are two stocks that look good.

First one is Culp Inc. (CULP - Free Report) , which specializes in mattress and upholstery fabrics. So it should benefit from the holiday season.

In its current fiscal year ending in April, the company is expected to grow revenue and earnings by 10.4% and 37.3%, respectively. 2023 is also expected to be a growth year.

CULP beat July quarter estimates by 3.5%. The estimate revisions trend shows a 7-cent (9.5%) increase in the 2022 earnings estimate over the last 60 days. There were no changes in the 2023 estimate.

Dunelm Group (DNLMY - Free Report) sells not only textile products but also other houseware such as lighting products, pet supplies and sewing machines. It is expected to grow its earnings 50.7% this fiscal year ending June. The company’s 2022 and 2023 estimates are up 9 cents (10.1%) and 5 cents (5.3%), respectively in the last 60 days.

And finally, there is the Textile – Apparel industry (top 10%), which has a very large number of buy-ranked stocks that are expected to benefit from a strong holiday season. I’ll briefly run through the ones with a #1 rank-

Crocs, Inc. (CROX - Free Report) , one of the leading footwear brands, is best known for its iconic clog material, simple design, comfort and style.

In the current fiscal year ending in December, the company is expected to grow revenue and earnings by 64.6% and 135.7%, respectively. This will be followed by 20.9% and 23.6% growth the following year.

The September quarter earnings estimate was topped by 30.0%. The 2021 and 2022 estimates are up a respective 70 cents (10.2%) and 85 cents (10.1%) in the last 30 days.

GIII Apparel Group, Ltd. (GII - Free Report) is a manufacturer, designer and distributor of apparel and accessories under licensed, owned and private label brands.

October and January quarter revenue and earnings are expected to grow double-digits. 2022 (ending January) revenue is expected to grow 30.2% and earnings by 341.7%. Further growth in both revenue and earnings is expected the following year.

2022 and 2023 earnings estimates are up 19 cents (6.4%) and 17 cents (5.1%), respectively, in the last 60 days.

Oxford Industries, Inc. (OXM - Free Report) operates retail stores, internet websites and restaurants. It sells apparel under owned and licensed brands to department stores, specialty stores, national chains, warehouse clubs and Internet retailers.

In the year ending Jan 2022, the company is expected to grow its revenue and earnings by 47.4% and 469.1%, respectively. Revenue is expected to grow double-digits and earnings triple-digits in both the October and January quarters.

OXM beat July quarter estimates by 39.1%. In the last 60 days, its 2022 earnings estimate jumped $1.19 (21.6%) while the 2023 estimate jumped 98 cents (16.4%).

PVH Corp (PVH - Free Report) designs and markets branded dress shirts, neckwear, sportswear, denimwear, intimate apparel, swimwear, footwear, handbags and related products.

It is expected to grow earnings 536.9% this year on revenue growth of 28.0%. The October quarter is expected to come in very strong at 56.1% earnings growth on the back of 13.2% revenue growth. But the next quarter will be stronger: 613.2% earnings growth on top of 11.7% revenue growth.

July quarter estimates were thrashed by 128.6%. In the last 60 days, estimates for 2022 and 2023 moved up 27 cents (3.2%) and 18 cents (1.9%).