Market Pro: This Hot Stock Wins At Holiday

With the holiday shopping season right around the corner, investors are scrambling to place their bets now - hoping to peg the big winner.

Morgan Stanley released their outlook on some specialty retailers ahead of the season and as you can see from the list below, only a handful are rated 'Overweight'. Take a look:

RatingMorgan Stanley Specialty Retail Outlook
Overweight Coach, Limited Brands, Ann Taylor Stores, Talbots
UnderweightJ. Crew Group, American Eagle Outfitters, Aeropostale
Equal-WeightTJX Companies, Gap, Ross Stores, Abercrombie & Fitch, Urban Outfitters, Chico’s FAS, Children’s Place Retail Stores

And of the handful of stocks rated 'Overweight' by Morgan Stanley analyst Kimberly Greenberger seems to like Coach best.

She says investors are underestimating the potential profit contribution from international markets especially China.

"China is not reported separately for Coach so its difficult to model the revenue for Coach but we did a deep dive into their China business," she explains.

She thinks it's going to explode.

"We see their China contribution going from .01 of contribution today to .22 over the next 12-24 months. We think that's powerful."

Also Greenberger likes their marketing strategy into year's end.

"Coach has a strategy this year that every time we go to the mall we'll see something new at the Coach store that will give shoppers new reasons to buy. Also there's a great trend in small handbags that Coach is positioned for."

What's the bottom line?

"We think Coach is very well positioned to win at holiday," Greenberger says.

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RISING INPUT COSTS

Speaking of shopping, the traders are closely watching the action in Procter & Gamble on Wednesday after the company said higher raw material costs hurt gross margins.

In fact higher costs are a theme in many earnings reports this season.

Kimberly Clark said on its conference call the cost of inflation was the highest ever in the third quarter, while JPMorgan took down estimates on Sanderson Farms and Tyson due to high corn costs.

Concerns over rising commodity costs have also caused a sell off in T-shirt maker Hanesbrands .

What’s the trade?

Cotton prices are up 73% year over year and at some point that comes home to roost, says Patty Edwards. We'll soon see higher prices or margin compression. It's something to watch closely.




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