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Why Hedge Funds Love This Retailer

Tuesday, 26 Oct 2010 | 3:18 PM ET

For a while there, hedge funds viewed Coach as “the weak hand,” Cramer said Tuesday, a “targeted stock” for short selling. They assumed that a disappointing quarter would take this $50 name back down to the mid-$30s.

But that never happened. Coach reported a bullish quarter, earning 63 cents a share—a sizable leap over the previous year’s 44-cent number. The announcement was “so powerful,” Cramer said, that now the very hedge funds that were selling COH short have been buying it in bulk.

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“You are literally seeing this tremendous herd of hedge funds that had targeted this stock, saying basically, ‘I give up. The company’s too well-run,’” Cramer said.

He thinks the strong performance was a product of great leadership in CEO Lew Frankfort, who delivered handbags and accessories at price points for both wealthy and aspirational customers. Ethan Allen’s Farooq Kathwari, Netflix’s Reed Hastings and Apple’s Steve Jobs are seeing similar success, even in this tough economy.

“I just think that people should have a little more faith in some of the CEOs in this environment,” Cramer said. “They recognize that things aren’t great in the country, and they adjust. And the CEOs who have adjusted have hit it out of the park.”

Cramer sees the potential for Urban Outfitters to deliver a great quarter as well. He thinks the expectations for this company are “so low” that even earnings estimate cuts have failed to hurt the stock. That may mean “some of the worst is over” for Urban.

“This could be an interesting one to watch the next time it ticks to $30 before they report,” Cramer said.

When this story published, Cramer’s charitable trust owned Apple.

Call Cramer: 1-800-743-CNBC

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