Why Is Carter's One of David Gardner's Top 5 Companies?

TL;DR

David Gardner likes Carter's as a long-term investment because it combines a risk rating of 5 with a durable consumer brand, rapid e-commerce growth, and international expansion. At the time discussed, Carter's was worth about $4.5 billion and had gained 18% since its April 2014 Stock Advisor recommendation, versus 3% for the S&P 500. Read on for the selection criteria, growth opportunities, and currency-related caution.

Transcript

David Gardner: But, what I was specifically looking for are very low-risk companies, that's attribute #1. These are typically -- for those who don't know our risk rating system, the lower the number, the lower the risk -- these are around 5 or 6, most of the stocks that I'll be mentioning. But then, the other thing I was looking for are companies t... Read More

Key Insights

• 😘 Low-risk companies with smaller market capitalizations tend to have higher growth potential.
• 💪 Carter's is a leader in the baby clothing industry with a strong brand presence and a focus on e-commerce and international expansion.
• 💪 The strong US dollar poses a short-term challenge for Carter's international growth.
• 💪 Investing in lesser-known companies can be rewarding, as they often deliver strong returns over the long term.

Questions & Answers

Q: Why does David Gardner like Carter's as an investment?

Carter's is a long-term leader in clothing for babies, toddlers, and young children, with brands including OshKosh B'gosh. Gardner also highlights its rapid e-commerce growth, international expansion, share buybacks, dividends, and risk rating of 5.

Q: What criteria did David Gardner use to select his five companies?

He looked for relatively low-risk companies, generally with risk ratings around 5 or 6, and smaller market capitalizations. He focused on businesses worth roughly $1 billion to $5 billion rather than companies valued at $100 billion or more.

Q: Why does Gardner favor smaller companies for long-term investing?

He says smaller companies often take bigger hits because they are more volatile, but they also tend to bounce back more strongly. Over his investment horizon of more than three years, he believes these lighter-weight companies have greater room to rise.

Q: How is e-commerce affecting Carter's business?

Carter's was experiencing rapid e-commerce growth because customers could buy clothing directly from the company online. Gardner therefore viewed Carter's as participating in the e-commerce revolution rather than being threatened by it.

Q: What international growth opportunity does Carter's have?

Carter's was expanding internationally and beginning to make meaningful inroads into China decades after its founding. Gardner viewed China as a promising market for the company's baby and children's apparel.

Q: How had Carter's stock performed since its Stock Advisor recommendation?

Motley Fool's Stock Advisor first recommended Carter's in April 2014. Nearly two years later, the stock was up 18%, compared with a 3% gain for the S&P 500, meaning it had outperformed the market by about 15 percentage points.

Q: What was Carter's valuation and share price at the time discussed?

Carter's shares were trading at about $86 when Gardner recorded the podcast. The company was valued at approximately $4.5 billion and had a risk rating of 5.

Q: What caution does Gardner give about investing in Carter's?

A strong U.S. dollar made Carter's apparel more expensive for customers in markets such as China. Gardner said this could dampen international growth in the near term, but he did not consider it a long-term concern.

Summary & Key Takeaways

• Carter's is a well-established company known for its cute clothes for babies and toddlers.

• The company is experiencing rapid growth in e-commerce and expanding internationally, especially in China.

• Carter's has a risk rating of 5 and has outperformed the market, making it an appealing long-term investment option.