Forget Lululemon! 2 Fashion Stocks to Buy While They’re on Sale

I’d look to pick up Aritzia (TSX:ATZ) and another stock before shares of Lululemon (NASDAQ:LULU).

| More on:
Choice of fashion clothes of different colors on wooden hangers

Image source: Getty Images

Lululemon (NASDAQ:LULU) stock has also been feeling the pinch of pressured consumers. However, relative to most other players in the apparel waters, the popular yoga-wear company has been pretty resilient.

How could this be? The brand is impressive, and though there’s been rising competition in the yoga and athleisure space, it seems like the powerful brand image and large total addressable market (TAM) in men’s wear could be drivers that could help Lululemon continue to outgrow peers, as we move through a recession en route to a normalized retail environment.

Indeed, shares of LULU are off around 15% from its all-time high hit back in 2021. Back in the lockdown days of COVID-19, it’s not hard to imagine more people lounging around the home, with more demand for yoga wear and less demand for more formal attire typically worn at the office.

Lululemon stays resilient amid macro storm

Though many workforces have moved to a hybrid, with some beckoning employees back to physical offices, I still think Lululemon has legs. So, what’s wrong with Lululemon? The stock is just too expensive for my liking at a time when there is no shortage of value plays in the retail waters. Further, I’d argue that some of Lululemon’s apparel peers may be in deep-value territory.

So, while the Vancouver-based Lululemon remains a legendary brand that’s been relatively resilient amid macro headwinds, I continue to favour other options out there. After a nice run off its 2021 lows, LULU stock goes for more than 51 times trailing price to earnings (P/E). That’s a pretty penny, with some pretty upbeat expectations built in. If a recession proves anything but soft, I’d argue that Lululemon stock could have more downside risk than the peer group.

Right now, I think fellow Vancouver-based apparel play Aritzia (TSX:ATZ) and generic clothing manufacturer Gildan Activewear (TSX:GIL) ought to be more fashionable among the value crowd.

Aritzia

Aritzia is way cheaper than Lululemon after losing around 60% of its value. At 22.52 times trailing P/E, though, the stock still doesn’t seem all that cheap. Indeed, macro headwinds are a contributor to ATZ stock’s fall. However, Stifel’s analyst Martin Landry is in the belief that the Canadian clothing retailer is losing market share, thanks to a 4.3% drop in same-store sales. That’s concerning, to say the least, and could bring forth even more pain for shareholders.

Still, I’m not so sure Aritzia’s troubling sales slump is the start of a trend. Indeed, Aritzia clothing isn’t what you’d consider cheap. As discretionary spending picks up, I think sales growth could really start to pick up. Indeed, the Aritzia brand is still incredibly popular. As a discretionary, though, the booms can be just as sizeable as the busts.

Right now, I view ATZ stock as having more upside than Lululemon, even if it’s a more fashion-forward play as opposed to athleisure.

Gildan Activewear

Gildan Activewear stands out as a great buy-and-hold play for investors looking for deep value in the clothing arena. The stock is off 26% from its 2021 all-time high and has been fluctuating wildly over the past few quarters.

At 10.56 times trailing P/E, GIL stock stands out as one of the cheapest ways to play the space. Generics and printable tees don’t tend to go out of style. In that regard, demand shouldn’t be as choppy as the likes of a fashion-focused retailer.

With a nice 2.56% dividend yield and the means to grow its payout over the years, I consider it a far less risky bet than the likes of Lululemon.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Aritzia. The Motley Fool recommends Gildan Activewear and Lululemon Athletica. The Motley Fool has a disclosure policy.

More on Investing

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

3 Top Canadian Stocks to Buy Right Now With Just $1,000

If you're about being able to diversify even with only $1,000, consider these three top stocks that could turn any…

Read more »

A golden egg in a nest
Dividend Stocks

2 TSX Golden Eggs That Investors Can Buy and Hold Forever

Plenty of blue chips in Canada offer a solid combination of growth potential and dividends, making them golden eggs for…

Read more »

value for money
Dividend Stocks

TSX at All-Time Highs: 2 Still-Cheap Stocks I’m Buying

I'm adding value stocks like Brookfield Corp (TSX:BN) to my portfolio in 2024.

Read more »

Canadian Dollars
Dividend Stocks

Invest $15,000 in This Dividend Stock for $457.81 in Monthly Passive Income

Are you looking for some more income in your life? This monthly dividend stock could provide exactly that.

Read more »

Oil pumps against sunset
Energy Stocks

Is Suncor Energy Stock a Good Buy?

Oil prices are rising on geopolitical risks.

Read more »

nvidia headquarters with nvidia sign in front
Tech Stocks

Why Nvidia Stock Surged After the Fed Rate Cut

An interest rate cut can be a growth stimulant for a variety of businesses in the market, including semiconductor giants.

Read more »

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

Here’s the Average RRSP Balance at Age 55 for Canadians

The RRSP is certainly a great tool for retirement, but only if you fund it! Here's how to boost it.

Read more »

question marks written reminders tickets
Dividend Stocks

Is BCE Stock a Buy for its 8.6% Dividend Yield?

BCE stock's 8.6% dividend yield dazzles, but is it fool's gold? Uncover the risks and potential rewards of this telecom…

Read more »