About a month ago, I identified Abercrombie & Fitch
Abercrombie shares plunged last week after the company guided the current quarter below analysts' expectations. Even worse, the company's holidays were anything but bright. Although the retailer's net sales increased by 16%, its same-store sales were flat. The retailer choked in a "highly promotional environment" here in the U.S. market.
Not only does Abercrombie need to get down with the markdowns to move inventory, it's also been grappling with skyrocketing cotton prices. This is not a good combination for this retailer; it's always aimed to be a high-end, "aspirational" teen brand, after all, and markdowns run counter to that brand's superiority complex.
Meanwhile, Abercrombie has exhibited ample evidence that its long-term strategy isn't exactly bulletproof, even if it occasionally grabs headlines. Last fall, Abercrombie's European weakness gave yet another reason for investors to think twice about holding the stock in the current economy.
Abercrombie isn't alone in the realm of retailers that have started the new year wrong. Wet Seal
It's not too late to sell weak retail stocks like Abercrombie, and certainly think twice before buying them. The good news is that there are high-performing, more-reasonably-priced substitutes in the retail space. Take Buckle
Buckle is currently trading at 14 times forward earnings, and boasts a PEG ratio of 1.24. Limited's forward P/E is 15, and its PEG ratio is 1.29. Although one could certainly argue Abercrombie's forward P/E of 12 and PEG ratio of 0.79 look the most undervalued of this particular trio, remember that Abercrombie's 2012 performance is in question right now.
It's not too late to gear portfolios to juice up better returns in 2012. And to achieve that end, there are far better investments than Abercrombie.
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Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Aeropostale and Limited Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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