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In June 2011 I saw an opportunity. No, I'm not talking about a summer-weekend-all-the-golf-you-can-play getaway (though that's still the dream). I'm talking about the opportunity to get in touch with my value side. Gap (NYSE: GPS) was trading around $18 per share and I thought that was just too low. So low in fact that I added it to my Rising Star portfolio. You can read all about why right here.
What's different?
Today, however, I am holding myself accountable to the reasons I bought the stock in the first place. While in the recommendation I noted higher cotton prices along with lowered guidance and margins as roadblocks for the stock price, today's February sales report revealed some more palatable numbers and the stock price is feeling the love.
And it's not just Gap. Other retailers, like Target (NYSE: TGT), Costco (Nasdaq: COST) and Macy's (NYSE: M), all revealed a bit of a healthier retail environment than analysts expected. And that's great news. So why am I selling now if the outlook is so great? Honestly, I don't think we are quite out of the woods yet. Housing prices are at their lowest since the beginning of the financial crisis and I'm also betting that unemployment will be ticking back up as well. As such, I'm doing what I consider to be the right thing and sticking to my initial strategy on this one.
Moving on
Retail is a cutthroat, no-moat business with only so many exceptions and I don't consider Gap to be one of them. I like the company and I like the direction it's headed. But I also think that the stock is getting a little ahead of itself. I'm thrilled with its performance, don't get me wrong. And I'll be the first to throw out there that if it takes a hit and comes back down I'd have no reservations on adding it back at the right price. It's beaten the market soundly since it joined the Motley portfolio. But for now I'm cutting ties, taking my gains and keeping my eyes open for more great opportunities.
