Investors sometimes think of groups as relatively unchanging. There is the mining sector, the railroads, auto makers and other clearly defined groups of stocks. The truth is that at one time, all of these were new industries and it took time for the companies to grow into a group.

In recent years, several new industries have appeared. Their appearance is largely due to consumer demand rather than specific inventions which led to new industries in the path. Among the new groups is the athleisure sector.

This is a fashion trend where clothes designed for workouts and other athletic activities are worn in other settings, such as at the workplace, at school, or at other casual or social occasions.

Athleisure outfits include yoga pants, tights, sneakers, leggings and shorts, that “look like athletic wear” and are characterized as “fashionable, dressed up sweats and exercise clothing.” The general concept can be summarized as “gym clothes making their way out of the gym and into everyday wardrobes.”

The idea has been covered extensively, including reporting done by NPR.

Athleisure Becomes Mainstream

NPR reported in 2015 that, “The NPD group says sales of athleisure apparel were more than $35 billion last year and that athletic apparel now makes up 17 percent of the entire American clothing market.

H&M, Urban Outfitters, Aeropostale and TopShop have all launched athleisure lines. Certain collections have gotten endorsements from celebrities like Kanye West and Beyonce. Chanel even makes a couture sneaker now.

How did all of this happen? Will McKitterick, an analyst with IBIS World, says there are two big factors at play in the rise of athleisure: yoga and the cyclical nature of blue jean sales.

First, McKitterick says, there has been what he calls “a change in what’s appropriate to wear.” Think yoga pants. Over the past decade or so, women have led this charge, specifically in their embrace of yoga pants outside of yoga studios. Now yoga pants, tights and leggings have moved from the gym to just about everywhere. That only helped make room for men’s sweatpants to leave the couch.

McKitterick says declining jean sales are part of the equation as well. Reports say sales of denim in the U.S. were down 6 percent last fiscal year. “Men, and people more generally, have a lot of jeans,” he says. “Jean sales have done really well over the last 10 years, and we’ve gone through a number of different fads surrounding jeans, perhaps most recently skinny jeans.

“But, fashion denim is cyclical,” says McKitterick. “So it seems we’re in a downturn period right now, and that’s not too surprising coming off the large amount of sales we’ve seen over the last 10 years.”

Athleisure apparel helps fill that void. For what it’s worth, McKitterick says jeans have faced competition before, from corduroys in the ’70s, and khakis and chinos in the ’90s. Jeans bounced back both times.”

Growth Offers Opportunities

Any new trend offers potential opportunities for investors. In the case of athleisure, the opportunities could be significant.

Morgan Stanley has predicted a growth to $83 billion by 2020, stealing the market share from non-athletic apparel. The graph below charts the rise of the trend globally, with sales climbing from $197 billion in 2007 to over $350 billion by 2020.

Source: Forbes

Analysts with Deutsche Bank note that athletic clothing is hurting regular clothing’s sales.

“We see athletic apparel boosting the industry, up 4.1% from 2008-2015 on average,” the authors write. “Meanwhile, non-athletic apparel was up only 0.2% during that timeframe and lagged overall apparel in seven of the past eight years.

As we believe the athleisure cycle is a bona fide trend with further dollar share shift ahead, we expect the disparity between athletic and non-athletic growth to widen in upcoming years.”

Investors should consider buying industry leaders which include Lululemon Athletica (Nasdaq: LULU). Shares are already up sharply but some analysts see significant room for growth and expect short term gains in the stock.

Brokerage firm William Blair named the stock among six with high potential for “appreciation over the next 60 days.” The call was part of a “Consumer Near-Term Focus List” it publishes every two months.

“We believe strong sales trends have continued in the second quarter driven by good execution and product newness, including expanded streetwear (tees, wraps, skirts, and joggers) and shibori dyed prints,” the analysts wrote.

They cited management’s suggesting strong same-store sales in Q2 and said they expected it to beat Wall Street’s consensus for quarterly comps while beating the consensus EPS estimate of $0.49. (The company guided investors toward $0.46-$0.48.)

“We believe investors will applaud the company’s healthy sales trends when second-quarter results are reported in late August/early September,” William Blair wrote.

“Longer term, we continue to believe Lululemon has an enviable competitive position with a powerful combination of highly productive small-format stores, aspirational proprietary product, a healthy e-commerce channel, and the potential to ultimately nearly triple revenue as the concept continues to expand across the globe,” the analysts wrote.

Analysts expect LULU to grow earnings at an average of about 16.7% in the next five years, putting it in the top 30% of growth estimates.

Bargain hunters might be attracted to Skechers (NYSE: SKX) which is also expected to grow earnings at about 16% a year.

Skechers is a designer and marketer of Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under the Skechers Performance brand name.

It also offers apparel, accessories, eyewear, scrubs and other merchandise. Its lifestyle brands include Skechers USA, Skechers Sport, and Skechers Active and Skechers Sport Active. The company’s products are available in over 170 countries and territories around the world.

This chart shows a stock that is basing with clear support in the $23 to $25 range which should limit downside risk. SKX trades with a price to earnings ratio of just 16.5, well below the industry average of 25.3.

Whether you are comfortable with growth or value stocks, there are opportunities in the athleisure group. The biggest names on Wall Street expect the trend to last for several years and consumers are unlikely to abandon comfort. That makes these stocks potential winners in the long term.

You can find more market related tips and products by clicking here.

Let’s face it. Investing is hard work. Finance professors figured that out a long time ago. One, Harry Markowitz, realized investing could be so hard that few people will beat the market. He created a theory to explain what could be the best way to invest.

Markowitz understood that risk and reward are strongly correlated. In order to achieve larger than average rewards an investor will need to accept larger than average risks. If an investor is uncomfortable with risk, they must accept low returns associated with low risk investments.

It’s a straightforward idea, well supported by extensive math. It’s an idea that won the Nobel Prize for economics in 1990. Markowitz’s theory of portfolio choice explains how investors can allocate investments to maximize their expected return based on the level of risk they are comfortable with.

It was Markowitz’s work that led to an understanding of the importance of diversification. He showed that owning uncorrelated assets could maximize returns consistent with risk. This is the well known efficient frontier.

Source: Wikipedia

Markowitz Likes One Sector In Particular

According to a recent article in Barron’s, Markowitz “has invested 100% of his liquid assets in the stock market, betting that the destruction from last year’s hurricanes will bolster industries involved in the reconstruction.”

“It’s for the long run, but not the indefinite long run,” he says. “My thought process is this: They are someday going to rebuild Houston. It will take a while, but they’ll rebuild Houston. They’re going to rebuild Florida….And they’re going to rebuild Puerto Rico.”

Markowitz, in some ways, has a theory of the markets that is consistent with George Soros’ reflexivity approach. Both believe that there are actions and reactions to changes in market prices. These changes reflect fundamentals but do not rely solely on fundamentals. Prices create reactions of their own.

He sees an action and reaction sequence building in the wake of the hurricanes.

“My knowledge is inference and action,” he says. “I never did a study of the construction industry, but I know there’s walls there, and glass there, and if you want to get rid of rubble,” you will need the right equipment, he says.

At the age of 90, Markowitz is retired and has income from pensions and social security in addition to investments. He wanted 100% of his liquid assets to be in stocks and at first, he allocated one third to large cap stocks, one third to a small cap ETF and one third to an emerging markets ETF.

Source: NobelPrize.org

This seems aggressive for many investors, especially a 90 year old retiree. But, Markowitz explained,                                                        

“Then I said no, no, no, let’s take the one-third big cap and split it equally among six equities.”

His selections are companies he believes will benefit from rebuilding hurricane damaged areas:

• Weyerhaeuser (NYSE: WY) because it will provide lumber that’s needed for reconstruction;
• USG (NYSE: USG), a company that makes wallboards;
• Corning (NYSE: GLW) which provides glass that will be used in windows;
• Caterpillar (NYSE: CAT) which Markowitz explained by saying, “think of how many bulldozers they’re going to need all over Puerto Rico;”
• 3M (NYSE: MMM) which is involved in mining; and
• United Technologies (NYSE: UTX), a conglomerate with divisions that make air conditioners and Otis elevators.

UTX is typical of the stocks. Its chart is shown below.

The stock has been a market leader but has sold off as talk of a trade war builds. Companies like UTX and the others that are on Markowitz’s list are vulnerable to a trade war.

These are companies that produce things in a global economy. They sell finished goods overseas and are subject to retaliatory tariffs that other countries impose on US goods. They also use imported goods in their manufacturing process which will cost more if tariffs are imposed by the US.

Markowitz’s Wisdom Extends to the Broad Market

In addition, his current portfolio allocation with Barron’s, Markowitz shared several anecdotes that reveal his wit and his wisdom. In short, he provided advice that all investors should consider.

First, he urged investors to understand their abilities and limitations. He reminds us that we are not Warren Buffett, and admits that he isn’t either.

 “Whether you’re passive or active, in general, as a basic principle, depends on how much information you have. Now, Warren Buffett and David Swensen, CIO of Yale University, they get offers that I don’t get and I bet you don’t get.

They get information I don’t have, and they have staff which they have personally trained that can evaluate that information. I am passive, since I’ve got more money than I need.”

This means we should invest only when we are confident we have enough information to do so.

Next, he addressed whether the current stock market is priced too high to invest in. He doesn’t think so.

“I’m just looking at the statistics of the stock market—they are not looking one step beyond how the economy is doing or what the economy is likely to do. The economy is likely to rebuild Puerto Rico!

We suddenly have a big influx of capital and an incentive to spend it, and we have an increase in supply and an increase in demand. But we are going to have economic activity at least until Puerto Rico is rebuilt, at which time I might be dead.”

Finally, he discussed a conversation he had with a new client and how he we will know when the stock market is too rich.

Like many of us, the client asked, “How would we know when the markets were ready to turn south?”

Markowitz responded by asking if the multibillion dollar fund manager was familiar with the Road Runner cartoons.

“You know how Wile E. Coyote chases Road Runner off the cliff and then finds himself hanging in space momentarily defying gravity before plummeting into the abyss,” Markowitz said.

For now, we are still running towards the cliff, Markowitz concludes. That means we should consider adopting his allocation towards aggressive positions and investors could seriously consider his construction thesis for new investments.