Dress for Success With the Gurus

A nicely valued apparel company has grown through financially making over its acquisitions.
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This column was originally published on RealMoney on Nov. 1 at 2:07 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

Ralph Lauren

(RL) - Get Report

, Calvin Klein and Donna Karan get the attention of fashionistas, but it's

VF Corp.

(VFC) - Get Report

that is really strutting its stuff. You may not be familiar with the VF name, but you certainly know some of its labels: Lee and Wrangler jeans, The North Face outerwear, Nautica sportswear, Vanity Fair intimate apparel, Vans and Reef footwear and JanSport backpacks. It also owns more than 100 outlet stores and 300 full-price ones.

This is a big company, with revenue of $6.9 billion and a market cap of about $8.4 billion (Ralph Lauren's market cap is $7.5 billion).

VF has made a name in recent years for making the most of acquisitions. Starting with The North Face in 2000, the company has bought such labels as Nautica and Vans, and it has shown it knows how to improve their profit margins. It wouldn't surprise me to see VF make another acquisition in the next several months.

You may not see VF's clothes ambling down a runway of some hot fashion show, but this company has a proven track record of knowing how to look good where it counts -- financial statements.

Two of my guru strategies rate VF as dressed for success. I think this is a company you need to seriously consider adding to your portfolio, even if its fashions are too middle-brow for your closet.

The Lynch Strategy

VF earns the label of "true stalwart" from my strategy based on Peter Lynch's books because its annual earnings growth rate (the average of its three, four and five-year EPS growth rates) is 17.08%, lying within the 10% to 19% range. The company's yield-adjusted P/E to growth ratio is 0.77, which is below the strategy's ceiling of 1.0.

Inventories in its last fiscal year increased a bit more than sales. This could be a cause of concern, but the increase wasn't so great as to be a significant factor. Management, however, should pay attention to taking better control of inventories.

The strategy requires EPS be positive, which is certainly true for VF, as it earns $4.89 per share. VF's equity is about three times its debt, which is just fine.

The O'Shaughnessy Strategy

My Cornerstone Growth strategy, based on the investing style of James P. O'Shaughnessy, requires that the company have a market cap of at least $150 million, a minimum VF easily exceeds. For each of the last five years, VF's EPS has increased from $1.89 to $4.54. This consistency is a strong positive factor.

Its price-to-sales ratio is 1.21, below the strategy's maximum of 1.5, indicating that it is not priced too richly. Finally VF's relative strength is 81, placing it among the top 50 stocks that passed the previous screens.

VF is a dynamic company. Its strategy of growth through acquisitions is a winner; it has also moved almost all of its manufacturing offshore, which is a money saver; Its management is experienced and proven, and its stock is reasonably priced, with a P/E of 16.1. Now's the time to dress up your portfolio with VF.

At the time of publication, Reese held none of the stocks mentioned, although holdings can change at any time.

John P. Reese is founder and CEO of

Validea.com

, an investment research firm, and

Validea Capital Management

, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book,

The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best

. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback.

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