The sauciness in fashion retailing isn't limited to scandalous clothing. The companies selling those microscopic tops and "muffin-" accentuating jeans can be just as exciting as the people wearing them. Start a relationship when you're low, and they can make the world seem new again. Of course, if you fall in love with the wrong fickle hottie at the wrong time, expect a quick trip to Dumpsville.
While this volatility might keep some value-oriented investors away from retailing, I see the same danger and come to the opposite conclusion. Fashion retailing is one of my favorite places to find value. There's a simple reason. In this space, more than almost any other, stocks can take amazingly quick falls, followed by quick recoveries. The volatility is driven (primarily) by the monthly sales numbers, every twitch of which sends Wall Street into ecstasy, or panic.
American Eagle Outfitters (Nasdaq: AEOS) -- which sells skirts so short I'm ashamed to walk into the store and check out the very company I own -- is in the middle of one of these stories now. Over the past few weeks, it has risen to nearly $30 a share on the heels of decent earnings and solid same-store sales. A few months ago, it was languishing because the Street thought the firm was over and done for because (gasp) it lowered earnings expectations a tiny bit.
I thought that was a gift, and I bought, and suggested others do the same. Investors who took my advice from our Stocks 2006 product and held out for American Eagle at $23.50 are sitting on a nice 25% gain. Those who got in closer to $20, well, they're a lot happier yet.
If this were an isolated case, I wouldn't blabber about it, but these opportunities arise all the time in retail. Check out the past year's numbers from this group of 10 of the 25 or 30 retailers I follow. The table shows the potential gains that could have been realized by holding from 52-week lows.
|
|
Ticker
|
52-W Low
|
4/10 Price
|
Potential Gain
|
|
American Eagle Outfitters
|
AEOS |
$19.45
|
$29.84
|
53.4%
|
|
Abercrombie & Fitch
|
(NYSE: ANF)
|
$44.17
|
$58.50
|
32.4%
|
|
bebe stores
|
(Nasdaq: BEBE)
|
$13.05
|
$19.69
|
50.9%
|
|
Hot Topic
|
(Nasdaq: HOTT)
|
$12.65
|
$13.83
|
9.3%
|
|
AnnTaylor Stores
|
(NYSE: ANN)
|
$22.88
|
$35.75
|
56.3%
|
|
Aeropostale
|
(NYSE: ARO)
|
$18.05
|
$29.70
|
64.5%
|
|
Guess?
|
(NYSE: GES)
|
$12.51
|
$42.48
|
239.6%
|
|
Wet Seal
|
(Nasdaq: WTSLA)
|
$3.13
|
$6.32
|
101.9%
|
|
Chico's FAS
|
(NYSE: CHS)
|
$24.59
|
$37.26
|
51.5%
|
|
Urban Outfitters
|
(Nasdaq: URBN)
|
$21.32
|
$23.02
|
8%
|
|
J. Jill
|
(Nasdaq: JILL)
|
$12.05
|
$23.93
|
98.6%
|
Data from Capital IQ, a division of Standard & Poor's.
Check out the value opportunities that you could have encountered by scanning retailers on the 52-week-low list. The worst returns in that pile are the 9% from Hot Topic, while the average return is 65%.
Fishing in the right pond
Now, this is not a scientific sample by any means, and I'm not trying to claim anyone could have actually picked all these stocks up at the low -- just try catching that falling knife. But I do think this illustrates that retail is a place where smart shoppers can snap up some bargains on a very regular basis, and that's why I encourage value investors to include this sector in their hunt.
Next week, I'll take a closer look at how I try to pick out the steadier dates among the retail hotties and avoid the ones in need of attitude adjustments. Some of the simple tools I use include checking out the trends in inventory turnover, cash conversion, and margins.
But before I sign off, I'll remind you that finding situations like this is one of the reasons we have Motley Fool Inside Value, and while the newsletter tends to stick with plainer Janes than these, there is a retail rebound story among the active recommendations. Best of all, there's a community of likeminded stock pickers who scour the market for the occasional saucy tart, and explain why they think it's a good idea. A free 30-day guest pass will let you sample it all.
bebe is a Motley Fool Stock Advisor recommendation.
Seth Jayson
has loved (and lost) most of the stocks in that table at one time or another. At the time of publication, he had shares of Aeropostale, Guess?, and American Eagle Outfitters but no positions in any other company mentioned here. View his stock holdings and Fool profile
here
.
Fool rules are
here
.
Terms & Conditions
RSS Headlines
Fool UK