On Monday, Bernstein analysts highlighted TJX Companies Inc (NYSE:TJX), On Holding AG (NYSE:ONON), and Tapestry Inc (NYSE:TPR) as top picks to own during a potential recession. Analyst Aneesha Sherman emphasized that these US Apparel & Specialty Retail companies are well-positioned to weather an economic downturn. The focus for investors during a slowdown should be on companies with higher income exposure, strong fundamentals, a compelling product or brand, and demonstrated pricing power.
TJX, known for its off-price retail chains including T.J. Maxx and Marshalls, has been identified as a historical winner in recessionary times due to its ability to attract trade-down consumers looking for value. The company's long-term strategy for average unit retail (AUR) growth, which includes pricing and margin mix shifts, has strengthened its earnings and demonstrated resilience. Even though TJX trades at a premium valuation, analysts believe it can sustain this due to its position as a "retail hiding place" and potential for positive earnings per share (EPS) revisions as a recession winner.
On Holding AG, the Swiss performance sportswear brand, is seen as protected from a demand slowdown due to its low market share in the US and strong demand in both wholesale and direct-to-consumer channels. Despite the stock being down year-to-date and trading at a two-year low, Bernstein maintains that this does not reflect the company's fundamentals, which include a premium price positioning and the ability to pass on potential tariff costs.
Tapestry Inc, the parent company of Coach , Kate Spade, and Stuart Weitzman, has shown strong pricing power with 16 consecutive quarters of AUR growth. The company's impressive 74.77% gross profit margin and healthy current ratio of 1.58 demonstrate its operational efficiency. The company has maintained dividend payments for 17 consecutive years, showcasing financial stability. The Coach brand, in particular, is gaining market share and attracting new customers, including Gen Z and higher-income shoppers. InvestingPro's analysis indicates the stock is currently undervalued, with a "GOOD" overall financial health score. Despite a recent 10.61% weekly decline, Tapestry has delivered a robust 50.53% return over the past year. For deeper insights into Tapestry's valuation and growth prospects, investors can access the comprehensive Pro Research Report, part of the extensive analysis available for 1,400+ top US stocks on InvestingPro.
The analyst's comments come in the wake of last week's market turbulence, which saw increased discussion about the possibility of a recession following tariff mayhem and Federal Reserve commentary. Bernstein's analysis suggests that these three companies have the fundamentals and strategies in place to not only endure a recession but also to potentially thrive during one. For investors seeking similar recession-resistant opportunities, InvestingPro's Portfolio Ideas feature provides curated lists of companies with strong fundamentals and defensive characteristics.
In other recent news, Tapestry Inc. has been the focus of several analyst reports highlighting its financial performance and growth prospects. Tapestry's second-quarter results have impressed, with earnings per share (EPS) reaching $2.00, surpassing the expected $1.75. The Coach brand, in particular, has shown strong performance, contributing to a 10% revenue increase in constant currency. Analysts from Raymond (NSE:RYMD) James, Redburn-Atlantic, JPMorgan (NYSE:JPM), and TD Cowen have all adjusted their price targets for Tapestry, reflecting confidence in the company's future trajectory. Redburn-Atlantic upgraded Tapestry from Neutral to Buy, raising the price target to $110, while JPMorgan set a target of $104, maintaining an Overweight rating. TD Cowen raised its price target to $90, maintaining a Hold rating, and highlighted the effective execution and operational efficiency at Tapestry. Meanwhile, UBS has identified Tapestry as one of the most crowded long positions in its coverage, indicating strong investor interest. These developments underscore the positive sentiment surrounding Tapestry's strategic initiatives and brand momentum.
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