My aggressive Top Pick for 2023 is Hanesbrands (HBI); the company has faced some headwinds from the coronavirus and inflation, but at its core, this is a fantastic company with leading market shares in several countries around the world, states Tim Melvin, editor of The 20% Letter.
Hanesbrands gets 70% of its revenue from innerwear and owns some of the best-known underwear and bra brands worldwide, including household names like Hanes, Maidenform, Polo Ralph Lauren, Playtex, Wonderbra, and Maidenform. Hanes also owns Champion, a leading sports clothing and sweatshirt company.
Unlike most of its competitors, Hanesbrands manufactures most of its products in factories it owns outright or has under long-term exclusive contracts. Of the two billion garments it sells annually, 70% are manufactured in-house.
Hanes also owns Champion, a leading sports clothing and sweatshirt company. Sweatshirts and hoodies are becoming more than just athletic apparel, and “athleisure” is expected to be a growth market once we get through the current global economic conditions.
The stock is trading at just 6.5 times earnings and $0.35 on the dollar of sales. That is too cheap for a portfolio of brands that dominate their markets.
Hanes shares have now fallen to a level that is currently yielding more than 9%. The company is earning its dividend and should continue to do so. While there has been talk on the internet about cutting or eliminating the dividend to preserve cash, I do not see any need to do so.
In addition to paying a dividend, Hanes has been generating more than enough cash over the past year to run the business, pay down debt, and buy back stock. If management were to cut the payout, I’d view the resulting sell-off as an excellent point to double down.
Hanesbrands is worth several multiples of its current stock price. If the balance sheet were not already leveraged, this company would have been scooped up by a private equity firm a long time ago.
The company dominates its markets with products we all use and replace all the time. As a result, the company has been generous about returning cash to its shareholders over the years. Patient, aggressive investors should see a return of multiples of their original investment, not just percentages.