Investing can be emotional.

I consider this a somewhat passionate weekly column. I trash a stock. I explain my reasons for the diss. I offer up three stocks that I think will be better replacements in your portfolio. The analysis may be cold, but your reaction doesn't have to be.

Who gets tossed out this week? Come on down, Hot Topic (NASDAQ:HOTT).

It's not in the game  
Hot Topic hit a new two-year high this morning. The stock has more than tripled since bottoming out in January 2008. You certainly don't expect that out of a specialty apparel retailer these days. Isn't the mall supposed to be dead?

Well, true to its counterculture merchandising, Hot Topic has been a contrarian. When the preppy chains such as Abercrombie & Fitch (NYSE:ANF) were thriving a couple of years ago, Hot Topic was in the doghouse. Goths, emo kids, and folks who like their clothes the way they like their vintage Model Ts -- any color, so long as it's black  -- turned their back on Hot Topic. Until last year, the chain was stacking negative comps on top of -- or below -- negative comps.

Then the mall rats scurried back. Fickle fashions change, so wasn't it just a matter of time? It also doesn't hurt that the runaway success of the Twilight books -- and last year's eponymous movie -- inspired animated show South Park to lampoon Hot Topic as the hangout for Clamato-sipping vampire wannabes.

But Hot Topic is feeling pretty good these days. It has beaten Wall Street's profit expectations over the past four quarters, and it posted a 7.1% spike in comps last month, bucking the country's trend toward lower retail sales.

I loved Hot Topic at less than half of today's price this past summer, even if I was incensed that executives decided to tweak their stock options. However, now that everything seems to be going right for the chain, it's time to bone up on the cyclical nature of its popularity, which has dogged the retailer in the past.

When Gothic eyes are smiling, something isn't quite right. For Hot Topic, a history of gravity and a lofty valuation are problematic. At today's inflated price tag, the stock is trading at 25 times this fiscal year's earnings and 22 times estimates for next fiscal year, which ends in January 2011.

Investors who got on when pessimism ran thick did well. You know what to do now that optimism is rampant.  

Good news
As I have every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting tossed. Let's go over three new fill-ins.

  • The Buckle (NYSE:BKE): The fashion apparel and accessories retailer is another salmon that's swimming upstream against the mall's downstream current. There are two reasons I'm more comfortable with The Buckle than I am with Hot Topic. First, its success doesn't appear to be hinging on the triumph of a movie franchise. The second point is that the stock is also more reasonably priced. The Buckle trades for just 15 times this year's projected earnings and 14 times next fiscal year's target.
  • Wal-Mart Stores (NYSE:WMT): Teens know that Wal-Mart isn't cool, but they can still appreciate getting more bang for their diminishing buck. Wal-Mart has become the world's largest retailer by excelling at selling goods at prices that rival department stores can't match. Target (NYSE:TGT) may be more stylish with its cheap-chic panache. Sears Holdings (NASDAQ:SHLD) may be hungrier with its desperate Kmart chain. But I still like Wal-Mart, especially since it has proved its worth as a recession-resistant play.
  • VF (NYSE:VFC): Shareholders of the company behind Wrangler jeans probably feel as comfortable in the company as they do in its denim. VF provides retailers with apparel brands you know, such as North Face, Nautica, and, yes, Wrangler. It also runs a few chain stores. It doesn't hurt that jeans are selling briskly at the moment, as a recessionary feel-good staple. Income investors will appreciate the 3.5% yield and the company's enviable streak of 36 consecutive years of increasing its dividend rate. Can you imagine Hot Topic on a similar streak? I guess it would have to start with initiating a dividend in the first place.

Other headlines out of the weekly garbage:

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Longtime Fool contributor Rick Munarriz wonders whether Hot Topic will be renamed Cold Topic once its popularity fades again. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.