Our favorite firms are ones with new, potentially revolutionary products that change the way we work, live or are entertained, and Levi Strauss (LEVI) is not that type of company, cautions Mike Cintolo, editor of Cabot Top Ten Trader.

Instead, it’s simply a well-managed outfit that’s far outperformed its peers during a time of slowing economic growth and supply chain issues, and the market is beginning to sense the stock is very undervalued.

The firm needs no introduction, with one of the top set of brands in the apparel world with a huge base of loyal customers, though despite that, Levi was lost in the wilderness a few years back as it rested on its laurels.

In recent years, though, new management has expanded the product lineup: Women’s apparel makes up a third of sales now, up from 26% a decade ago, while tops (20% vs 10%) are also a bigger slice of the pie and there’s a revamping of the Docker’s line and a move into yoga, dresses and even maternity wear that’s starting to pay off.

Throw in cost cuts over time and fine-tuning the supply chain, and it’s all paying off now in a tough environment — in Q2 (reported July 7), Levi saw currency-neutral sales rise 20% while earnings lifted 26% (29 cents per share beat by six cents), saw margins actually rise (a rarity in the sector), reaffirmed guidance and it even hiked the dividend by 20% (now yielding a solid 2.5%).

As we wrote above, there’s nothing revolutionary here, and analyst estimates show that (earnings up mid/high single digits this year and next), but (a) those should prove conservative given the company’s execution and (b) even with that, the dividend and low valuation (12x trailing earnings) implies there’s room for upside surprises.

Technically, LEVI had a good (not amazing) post-pandemic rally, but it peaked in May of last year at $31, topped out for a few months and then hit the skids with everything else — it wasn’t until shares sank below $16 in May that they started to find support.

That support area held during the market’s June meltdown, and July has been outright bullish — LEVI began pushing higher after its Q2 report and has kept going, rallying for all but three days this month and nosing out to three-month highs in the process. We wouldn’t chase it, but our guess is the worst is behind the stock — if you want in, aim for dips.

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