Before the opening bell on Monday, Jefferies boosted its rating on The Gap (GPS). Here’s what the move means for mutual fund investors.
Inside the Analyst Move
Jefferies has upgraded The Gap from “Hold” to “Buy” and has named the stock its “best new idea” for 2015.
According to analyst Randal Konik, the company’s catalysts include:
- Strong momentum in its Old Navy segment.
- Sourcing cost tailwinds from cotton prices are at five-year lows.
- Free cash flow accelerates as cap ex/sales ratio lowers.
- The company’s brand remains relevant
Fairly Valued, with Several Potential Catalysts
From a valuation standpoint, GPS is fairly valued. There are also several catalysts and opportunities with this stock, including potential buybacks and lower commodity prices. A private equity deal could be possible in the future, although the company may be too expensive to spark interest.
Mutual Funds to Watch
Investors interested in GPS may also be interested in the funds listed below. These funds currently have the largest stakes in the company.
| Symbol | Mutual Fund | Stake |
|---|---|---|
| VTSMX | Vanguard Total Stock Market Index | 0.95% |
| VFINX | Vanguard 500 Index | 0.69% |
| TRMCX | T. Rowe Price Mid-Cap Value | 0.36% |
The Bottom Line
The funds above allow investors to gain exposure to GPS while remaining diversified. Investors interested in The Gap may also be interested in L Brands (LB) and The Buckle (BKE).