UBS names top picks in U.S. softlines retail on strong fundamentals

Investing.com -- UBS remains bullish on U.S. softlines retailers, highlighting stocks with improving fundamentals, strong cash-flow returns and attractive valuations in a research report dated.

The bank’s UBS HOLT scorecard assesses operational quality, momentum and valuation across its small- and mid-cap coverage. Its leading picks include:

1. Abercrombie & Fitch Company (NYSE:ANF): UBS sees strong momentum, supported by improving fundamentals, tariff refunds included in cash-flow return on investment (CFROI) revisions and positive share-price performance.

ANF scored 94 out of 100 in the HOLT scorecard, the highest among the stocks covered.

2. Groupe Dynamite Inc (TSX:GRGD): The retailer scored 85, reflecting strong operational quality.

UBS cited robust sales growth driven by its Garage brand and store expansion, alongside higher margins supported by lower markdowns, efficient inventory management and expense leverage.

3. Signet Jewelers Ltd (F:SIG): Scoring 82, Signet ranked among UBS’s strongest names, combining solid momentum and a relatively attractive valuation.

The bank identified it as a better-valued opportunity among its Buy-rated coverage.

4. Kontoor Brands Inc (NYSE:KTB): UBS highlighted Kontoor’s operational quality, with a score of 96 in that category, the highest in its coverage.

Consistently strong cash-flow returns, stable operating margins and improving asset efficiency underpin its appeal, although weaker momentum and valuation rankings weighed on its overall score.

5. Aritzia Inc (TSX:ATZ): UBS pointed to strong sales momentum and improving earnings expectations, which have lifted its CFROI forecasts.

Aritzia had the highest momentum score alongside Abercrombie, but its valuation score was relatively weak.