We think Buckeye can take advantage of this. There are strong fundamentals working in the company’s favor. Global recovery supports the thesis that there will be gains in demand. I think it’s a great opportunity to participate in global industrial growth driven by developing countries that need raw materials for very basic end products. This is a company with solid underpinnings. Our year-end price target is $19.
So far, you’ve chosen two producers of industrial goods. Are you sticking with that theme for your final pick?
No, actually the final pick is an apparel manufacturer with licensed brands and very favorable dynamics: G-III Apparel Group Ltd. (GIII). This is a company with a $500 million market capitalization. Their business is 89% wholesale, selling outerwear and other clothing to stores such as Bloomingdale’s, JC Penney, Kohl’s, and Nordstrom. Macy’s is one of their larger customers. They’ve historically been an outerwear company, which meant that all their profitability used to come in the third quarter. They’ve expanded to other types of clothing and accessories. For instance, they own a license to make dresses for the Calvin Klein label. The other positive driver for them is that the entire retail sector is restocking its inventory on the heels of stabilizing consumer demand.
I think the American consumer has continued to surprise everyone; same-store sales are pretty strong. Any increase in demand at the retail level should benefit the suppliers who sell to retailers. G-III’s management has been increasing margins. We expect this trend to continue through 2010. We think there’s significant opportunity for this company to outperform market expectations. G-III bought Wilson’s Leather retail outlets in 2008. They’re improving margins in the Wilson’s business by reducing the cost of materials. That business has yet to contribute to results. We’re starting to see positive signs, and there’s a possibility that by the end of the year that portion of the business could swing positive. G-III’s overall strategy is to increase the number of stores that sell their apparel. We see all of this leading to upside earnings surprises. Our year-end price target for G-III is $34.50.
This article originally appeared in the June 2010 issue of Black Enterprise magazine.