Sometimes, you just want to play things safe. Maybe your portfolio is full of pharma and Greek shipping companies, and you think to yourself, "I need some diversity, posthaste." Retail is a great place to pick up that diversity. The sector is easy to understand, full of nice stable companies, and is getting back into growth mode as the economy turns around. But if you're looking for a stable stock, avoid the highfliers and turnarounds. Here are a couple companies that are doing great things at a decent price.
The comfort of the middle
A lot of investors are crazy for lululemon athletica
It's easy to see why people have gone nuts for this stock. Shares have increased over 20% so far this year, even with a slightly less-than-stellar outlook for Q2. But as I said before, this thing is hot, and investors are paying a premium for getting in. Right now, Lululemon is trading at a forward P/E of 28.
So other investors have taken the low road, looking for the cheap turnaround play to get in the game. Companies like rubber-shoe maker Crocs
While all stock purchases come with risk, these extremes come with very clear and heightened risk. With Lululemon, investors run the risk that the company stalls out, and goes from being a phenomenal company to merely a decent company. On the other hand, a few more quarters of lowered guidance from Crocs could put the shares in the grave. Instead of taking on that kind of risk, let's look at some companies that are doing well, growing solidly, and priced in the middle.
Stone-washed jeans are so last decade
All of the companies I'm going to look at here are mainly jean retailers. The best known of them is Guess?
Last year, the company increased revenue 8% to a record $2.7 billion. While none of these companies is overly expensive, Guess? is the cheapest. It currently trades at a forward P/E of 10, making it only slightly pricier than Crocs. Part of the reason for its low price is a lackluster Q1 performance. Revenue dropped 2% last quarter, with net income taking a dive due mainly to issues in Europe. Guess? is still a great stock for the long run, and I have no doubt that it will push through the minor setbacks it's seen so far this year. Full-year revenue guidance is still in line with 2011.
Getting something useful from the mall
While Guess? is working to keep its global operation in line, Buckle
One of the reasons I like Buckle so much is the company's leadership. CEO Dennis Nelson has been with the company since 1970, when he joined as a salesman. He took the CEO position (there were other positions in between) in 1997, and has helped push the stock up to 10 times its 1997 price. The chairman of the board is the founder's son, and still plays an active role in the management of the company. I love a company with that sort of history in its leadership, and it shows the importance that the company places on measured growth. You'll pay a bit more for Buckle's stability, but nothing outrageous. The stock is currently trading at a forward P/E of 11.
The bottom line
I like Guess? and Buckle as plays in the middle. Since I tend to be a little more risk-averse than the average investor, I'm going to throw my hat in with Buckle. The longevity of the management really means something, and the consistent growth the company has seen -- even through the recession -- is reassuring. If I needed a solid, fairly priced retailer in my portfolio, Buckle would be on the short list to fill that gap.
While I'm not expecting Buckle to triple in a year, it's strong enough to go the distance in a steady manner. The Fool has pulled together a list of stocks with that kind of solidity in its free report: "Secure Your Future With 9 Rock-Solid Dividend Stocks." This in-depth report gives you the details on these nine companies and why they make great dividend plays. It's all free to Fool readers, and can be yours for a limited time. Get your copy of this excellent report today.
Fool contributor Andrew Marder does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Buckle, Guess?, and Lululemon. Motley Fool newsletter services have recommended buying shares of Lululemon and Guess?, as well as writing covered calls on Guess?. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.