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3 Bargain Apparel Stocks to Buy Before Recession Fears Subside

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Product cost inflation, tight labor market and supply chain issues are some of the headwinds that players in the Apparel industry have been encountering lately. Also, soaring prices are squeezing consumers’ disposable income and dampening demand for discretionary categories. With the desperate need to tame inflation, the Federal Reserve is raising the benchmark interest rate.

However, a higher interest rate environment is not good news for consumer-centric industries. Moreover, experts fear that the Fed’s hawkish stance to rein in inflation might push the economy into a recession. In its latest move, the Fed raised the benchmark lending rate by 50 basis points, which took the interest rate to 4.25-4.5%, the highest since 2007.

The Fed’s action will determine the course of the stock market in 2023. Meanwhile, a favorable reading on the Consumer Price Index front indicates that the Fed might be less aggressive while raising the interest rate next year. On a month-to-month basis, the consumer price index inched up 0.1% in November, decelerating from 0.4% in October.

Slowing inflation will give some respite to American households and lift consumer confidence. The impact of cooling prices will surely be reflected in increased consumer spending, which accounts for more than two-thirds of U.S. economic activity. Market pundits believe that with the improvement in the geopolitical situation, inflationary pressure will gradually alleviate next year.

Amid this, it is prudent to scoop up Apparel stocks that are currently the victims of the wild swings Wall Street has witnessed in 2022. These stocks are fundamentally sound and trading below their potential. Chico's FAS, Inc. (CHS - Free Report) , American Eagle Outfitters, Inc. (AEO - Free Report) and Citi Trends, Inc. (CTRN - Free Report) are among the bargain stocks that are poised for a turnaround in 2023.

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3 Prominent Picks

Investors can count on Chico's. This Florida-based fashion retailer’s efforts to become a “digital-first, customer-led” company coupled with a strong portfolio of three unique brands, namely, Chico's, WHBM and Soma, position it well to expand its customer base and market share. Product enhancement, planned inventories, operating discipline and marketing strategies have been helping to drive full-price selling, lower markdowns and produce higher gross margin.

Chico's has a Value Score of A. The Zacks Consensus Estimate for fiscal 2023 sales and EPS suggests growth of 5% and 9.9%, respectively, from the year-ago period. Shares of this Zacks Rank #1 (Strong Buy) company have risen 1.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle Outfitters, a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products, is worth betting on. The company’s efforts to rationalize inventory and contain costs are paying off. Continued strength in the Aerie brand and a solid online show bodes well. Shares of this Zacks Rank #2 (Buy) company have lost 40.1% in the past year.

American Eagle Outfitters has a Value Score of A. The Zacks Consensus Estimate for fiscal 2023 sales and EPS suggests growth of 3.5% and 24.9%, respectively, from the year-ago period. American Eagle Outfitters has a long-term earnings growth expectation of 11.6%. A decent growth rate is likely to drive the stock in 2023.

Citi Trends, a leading specialty value retailer of apparel, accessories and home trends, is another potential pick. We believe that management’s focus on curated assortments and incredible values should attract customers. Meanwhile, cost containment efforts and efficient inventory management should help navigate the current environment.

Citi Trends has a Value Score of A. The Zacks Consensus Estimate for fiscal 2023 sales and EPS suggests growth of 6.2% and 97.4%, respectively, from the year-ago period. Shares of this Zacks Rank #2 company have declined 66% in the past year.

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American Eagle Outfitters, Inc. (AEO) - free report >>

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