One of the biggest advantages of being rational is that you can take advantage of the irrational.
In late October, according to the Wall Street Journal, Mr. Market was disappointed that VF Corp’s (NYSE: VFC) revenues did not meet analysts’ expectations. (VFC, by the way, is a worldwide apparel company and is the maker and distributor of many popular clothing brands, including The North Face, Timberland, Wrangler and JanSport.) Many fickle, skittish investors agreed with the sentiment and viewed this news as a crushing blow to the company and its future, sending the shares down 4.4% the following day.
More than one month later, the stock has been stuck in a sideways pattern, currently trading around $155.
Now for a Reality Check.
Clear your head, forget about “analysts’ expectations” and let’s reason together. Here are the facts:
– VF Corp.’s 3rd quarter earnings rose 27%!
– VFC reported a profit of $381 million, or $3.42 a share, up from $300.7 million, or $2.69 a share last year.
– Revenue at VFC increased 14% to $3.12 billion.
– VFC also announced that they will raise their dividend by 21%!
Let’s compare this with other, more popular companies in the Apparel Industry: Target (NYSE: TGT), J.C. Penney (NYSE: JCP), and Sears Holding Corporation (NASDAQ: SHLD).
| Comparison Stocks | VFC (VF Corp) | TGT (Target) | JCP (JC Penney) | SHLD (Sears Holding Corp) |
| Market Cap | $17.7B | $40.5 | $3.8 B | $4.5B |
| Profit Margin | 9.4% | 4.2% | -3.6% | -7.1% |
| Dividend Yield | 2.2% | 2.3% | No Dividend | No Dividend |
| Earnings Growth | 11.0% | 6.0% | 0 | 0 |
| Revenue Growth | 24.0% | 3.8% | -17.2% | -4.8% |
| Return on Assets | 10.0% | 6.2% | -4.4% | -11.9% |
While less discussed on CNBC, Bloomberg, Wall Street Journal, and the like, this boring company is hard to beat as a long-term investment. Based on the chart above, investors should not even consider buying shares of JCP or SHLD in hopes of a rebound. Both of these once-great companies are sitting on the precipice of extinction, and one or two bad moves will push them over. Buying their shares is only speculation (read: gambling) and is a fantastic way to lose large volumes of money, if you’re into that sort of thing.
Minneapolis-based Target is a solid company worthy of consideration. However, in almost every comparitive metric, VF Corporation matches or exceeds its bullseyed brother. If you want to invest in TGT that’s fine, just invest more in VFC.
You can decide if the market’s continued pessimistic response to VFC’s quarterly report in late October is appropriate . . . or ridiculous. I believe this is a fantastic pull-back opportunity to buck popular opinion and invest in a fantastic growth company that will reward us–the shareholders–for years to come.
Join me and buy VFC.
Jeffrey W. Ross, MD is a Motley Fool investment freelancer.