Investing.com -- UBS upgraded its ratings on several retail stocks, signaling a bullish outlook for the Softlines sector in 2025.
A recent research note shows UBS upgraded Abercrombie & Fitch, Burlington Stores (NYSE:BURL), Boot Barn (NYSE:BOOT), and Gildan Activewear (NYSE:GIL) to Buy, citing significant growth potential and attractive valuations.
UBS analysts believe that anticipated U.S. tax cuts, reduced government spending, and deregulation could stimulate apparel and footwear spending, boosting investor sentiment.
"Our conversations with investors suggest the market has started to price in US tax cuts, reduced government spending, and deregulation. However, we think the market still underestimates how these actions could supercharge apparel and footwear spending as well as sentiment," UBS stated.
The firm also downplayed concerns over tariff risks, suggesting that earnings for Softline companies would remain largely unaffected.
They note the Softlines group currently trades at a 21% price-to-earnings discount compared to the S&P 500, a sharp contrast to its historical average premium of 15%. UBS anticipates this valuation gap will narrow in 2025, presenting a "very good year for Softline stocks."
UBS is particularly optimistic about growth stocks in the sector, noting, "Our quant analysis shows growth-related factor portfolios have delivered the strongest returns over the past 20+ years."
The bank highlights ANF, BURL, BOOT, and GIL as having "LDD% or better FY25 EPS growth potential" that is not fully reflected in current valuations.
Additionally, UBS upgraded Gap and Nordstrom (NYSE:JWN) to Neutral.
The investment bank noted that Gap’s CEO, Richard Dickson, has shown a strong capability to drive change, which was previously underappreciated. Nordstrom’s potential plan to go private influenced its rating change.