Most investors love the idea of stocks with the potential for big pops -- the multibagger moves that can really power a portfolio higher. There's often a price to pay for that potential: higher risk, and more severe oscillations, whichever way the price chart eventually tilts.

For example, consider the case of China's largest used-car seller, Uxin (NASDAQ:UXIN). It dominates in a market with huge potential for growth, and it has delivered serious gains in recent weeks. But it's also a broken IPO, and the stock has fluctuated far more on emotion than on numbers since its debut. Or one could look at Skechers (NYSE:SKX), which has a strong balance sheet, a reasonable growth story, and an ugly stock chart for 2018.

In this Market Foolery podcast, host Chris Hill and senior analyst Seth Jayson discuss these companies, their outlooks, and whether they ought to be on your watch lists, and they take a deeper dive into complexities of the apparel retail sector. 

A full transcript follows the video.

This video was recorded on Dec. 18, 2018.

Chris Hill: It's Tuesday, Dec. 18. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio, Seth Jayson, in the house. 

Seth Jayson: Always fashionable!

Hill: [laughs] Always fashionable. Oh, we're going to talk about fashion!

Jayson: In my Eddie Bauer pullover thingy, and my Eddie Bauer adventure pants. That's all I wear. It might as well be my uniform. 

Hill: Are they paying you for this promotional announcement?

Jayson: I just happened to notice it. Eddie Bauer did pretty horribly, right? I forget which private equity company passed it off on another one. But this is just yet another indication. If I'm wearing your clothes, you're a bad bet.

Hill: You're in trouble. Wait a minute, you're wearing a pullover? What is the name of the pants? Performance pants? Is that what you said?

Jayson: I call them adventure pants. They're just khaki. They're comfy. They have a little stretch in them. They make them long enough for me. They look all right. They handle the laundry. You can wear them on the mountain, or you can wear them out to eat, without feeling like a complete fool, idiot, geezer.

Hill: I'm just telling you, if someone's going to market adventure pants, I'm interested. I'm not saying I'm buying. But the name alone gets me interested.

Jayson: The CIA wants you to wear these pickpocket-proof pants. How many times have I seen that on the internet? These are pickpocket specials here. Eight million zippers, each one easier than the last. 

Hill: [laughs] We're going to dip into the Fool mailbag. And yes, we are going to talk about fashion, and not just adventure pants.

Let's start with a company I'd never heard of. It got name-checked yesterday by Emily Flippen on the show. You and I were talking about this this morning.

Jayson: Emily and I are on the same wavelength here. We have to be on the show together, or two weeks apart.

Hill: This is Uxin. It's a Chinese used-car company.

Jayson: Used-car tech company. A big lead in market share, bigger than all the reasonable competitors combined. A small cap, worth about $2.5 billion right now. Still not money-making. But this could be a pretty big market. And with their lead in mindshare and technology, I think it's a fairly decent bet. Emily's the one who brought it to me, and I thought it was good enough for my small-cap picks, then I ended up buying some more. It's just been crazy. 

What they do is, they have a pretty automated car-buying platform. It involves stuff that you would not get here in the U.S., where you have to go to something like CarMax. With Uxin, you get online videos of a mechanic going through and showing you all the stuff that could be wrong. This helps them get better price matches. It helps buyers know more. It's really pretty impressive. They also do some finance arrangements, and they can take a cut of that. It's a pretty interesting business.

Kind of broken IPO. Then the stock, over the last two weeks, it's up 200%. But let's not get too excited about that, because the two months before that, it was down 60% or something. It's crazy.

Hill: Yeah. Before, when you said, "This thing's been crazy," I thought, well, it's been crazy in two ways. One in terms of what the stock has done in the last couple of weeks. But then, two, just in terms of the volatility.

Jayson: Today, it was up slightly this morning. It was down 7% last time I looked. I was planning to buy a little more of that this week or early last week. And I just thought, oh, there's no rush. Well, they announced recently a deal with Alibaba, an investment deal to sell cars on Taobao. Then, after that, they announced that they'd moved something like 20,000 cars in 18 hours or something. And the stock went crazy. Like I said, up a couple of hundred percent in a week or something of trading days. 

One, it's an interesting company. Two, this is not a company you put all your money in. Widows and orphans money, as they say. Even if you have acid indigestion, or are prone to it, stay away. 

But it also shows you that people have no idea what to make of it. I mean, there's just no rational reason that a company should fluctuate like that. There's no valuation going on here. It's purely people freaking out, rushing to the exits and rushing back to the entrance.

Hill: To your point about the allocation, we get questions all the time about asset allocation. It's something that I think, hopefully, people get better at over time. But certainly, for stocks like this, having that mindset of, I'm going to have 5% or less of my portfolio -- 2%, if you want -- not necessarily in this one stock, but just say, "I'm going to have a very small percentage of my portfolio in volatile stocks like this. This is going to be a way for me as an investor to test, how strong is my stomach?" Because if 1% of your portfolio is in a stock like this, and you find yourself getting sick at the movements up and down, then maybe volatility ain't for you. 

Jayson: Yeah. It's a good lesson. You shouldn't be there. I recommended this one. I liked it at the $6 price or whatever it was -- and of course, I was locked out for a while. I think I got my shares in the $3.90 range. Then it was promptly down 40%. That's just what happens. And all of a sudden, they're $8.50 again.

It's a good learning experience and a real reminder to take the allocation advice seriously. It's easy to be like, "Oh, it's up 200%! I should have put $100,000 on it!" But that would have been dumb, even if you'd tripled your money in a couple of weeks. It wouldn't have meant it was a good decision.

Hill: Let's talk about fashion. This has come up a few times in this month alone on this show. Apparel retail is a tough business in general. It's tough for investors to get right for extended periods of time. I feel like, in any given 12-month period, any number of stocks have done well. But over, say, a five-year period, they're trailing the market. When you look at apparel retail, fashion retail right now, what stands out to you?

Jayson: I was reading a story on Bloomberg. It made me really wonder what's going on right now in the U.S. A lot of retailers and fashion retailers are doing OK. They're doing better than they have for some time. In the few years leading up, Europe was helping out those that had significant global operations. Then we had a bifurcated market. Some of the higher-end companies were doing well. Think of a Lululemon. Meanwhile, some of the cheaper companies were going crazy, doing well selling lower-end stuff.

This article on Bloomberg was about ASOS, a company a lot of people in the U.S. won't have heard of. They do $3 billion or something in sales last year.

Hill: ASOS?

Jayson: Yeah. Internet clothing. I didn't know much about them. A U.K. company. They issued just a doozy of a "we ain't doing so great" statement last week. I thought it was really interesting. "Oh, there's that Brexit thing hitting the U.K." Turns out, that's not really the case. Sales in the U.K. were all right. It's Germany and the rest of the continent over there that are really hurting them. 

That made me wonder: What do we make of this? This company sells low-end, cheap clothes on the internet. It's tough to make money doing that. We saw good results from H&M, which is familiar to shoppers and investors in the U.S. because they do well here. They actually had good sales numbers not long ago. 

I'm really wondering where things are going to shake out. Under Armour is trying to sell a lot overseas. Depending on some European business, still primarily U.S. They're stinking it up lately, and they're premium. Lululemon, the stock's down, but the sales have been going well. They don't do a whole lot in Europe. They're U.S., Canada, and Asia. 

If you're in some of these companies, you probably want to examine what is going on, pay attention to what's going on with European apparel and European fashion. If you're in something like Guess?, you're more exposed to that. How's a company like Deckers going to be doing in the shoes segment? Or, one we may be talking about next, Skechers. Not to get too far ahead of ourselves. 

Hill: Spoiler alert.

Jayson: One of the problems with the ASOS numbers was that there was a big drop in branded shoe sales in the E.U. This was an alarm bell for me because I had assumed that Europe was continuing to chug along OK. For a couple of companies right now, clearly it's not.

Hill: Our email address is marketfoolery@fool.com. Question from Matt in Akron, Ohio. "What are your thoughts on Skechers? I have long felt it is a solid company with very little debt and a good growth story. I know the China fears are playing into the decline in price. Is there something else driving it lower that I'm missing?" Great question! Is he missing something?

Jayson: If he's missing it, I'm missing it, too. I looked through it today. I haven't caught up with Skechers for a while. Was it Matt in Columbus?

Hill: Akron. But, yes, Matt.

Jayson: Akron, Columbus. Ohio. It's Ohio.

Hill: [laughs] You know what? I bet there's some level of rivalry between Akron and Columbus.

Jayson: There's some Akron-mony? 

Hill: [groans] Let's move on!

Jayson: Let's move on! Domestic wholesale was down slightly in the last call. But expected to get a little better for Q4. Maybe nobody's expecting that anymore. International was doing pretty well as of Q3. That's more than half the business right now. I hadn't realized that Skechers has almost 3,000 stores worldwide now, in addition to their direct business, the wholesale business. They're really everywhere. They're No. 1 in a whole bunch of categories. I buy a lot of Skechers shoes for my little girl. She's 9 and she still likes the flashy shoes. They're generally pretty decent shoes. They look all right for her. They're comfy and they last the appropriate amount of time. 

International is doing well. I'm going to say, maybe it's just the China thing for right now. They talked about it in the last call. They still don't know quite what's going on. Nobody does. Their products, as of right now, are not subject to increased tariffs, but they could be if the next tranche of a trade puffery goes through. But they're always looking at ways to move their manufacturing to other countries. Now, so is everybody else at this point. I would say that maybe the takeaway here is we should all open a shoe factory in Indonesia or Vietnam.

The strong dollar is also making things a little bit tougher. I think we just have the wall of worry here. When you look at how far the stock has come back, and you look at the strong margins they usually produce, the good cash flow production and the balance sheet, Skechers looks like a pretty good long-term bet to me, from this level. May get a chance to get it in the teens or something, it'll be a steal.

Hill: I was going to say, just to be more specific about the numbers, eight months ago, this stock was in the low 40s. Today, it's in the low 20s. Not that you ever want to try and time things perfectly for buying at the bottom, but it certainly has come back a long way.

Jayson: Personally, if we weren't talking about it today, I probably would have bought a third position. When Chris sent this over to me for an idea, the only question I had is, why is anyone so interested in Skechers? Because last I saw, it was $40, and the valuation looked like it was ahead of itself. At $20, we're talking about a much different proposition. I like a company like this, that's pretty steady and trading at a decent discount. Over the years, their return on invested capital versus their cost of capital is great. They have good returns. They're really solid. I don't see anything that I would worry about, but I've been wrong before.

Hill: Seth Jayson, thanks for being here! As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!