Mad Money

UGG Boots Under Armour in Kicks Contest

Mad Money’s weekly Off the Charts segment is a chance for viewers to learn comparative stock analysis, the very decision making that Cramer used as a hedge-fund manager. He studies the charts to find the best stock among a group of two or more and then uses fundamental analysis as the final judge before he makes his call. The contestants this week? Apparel outfits Deckers Outdoor and Under Armour .

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When it comes to the technicals, these companies are nearly identical. Their charts show that both stocks broke out above their 200-day moving averages on high volume, then spent months consolidating those gains on lower volume. In technical analysis, a high-volume run is a sign of legitimacy, meaning investors can trust it, and the lower volume that follows indicates a lack of interest in selling, as most of the people who own the stock are willing to hold on.

Soon after, Decker and Under Armour broke out again on high volume and then fell back into light trading. This seems to be “a very bullish pattern,” Cramer said, given the same previous move and a shareholder base that’s content to sit tight. And it’s the reason one of the Mad Money host’s favorite technical analysts called the stocks “screaming buys.”

But the fundamentals tell a different story, Cramer said, at least for Under Armour. He looked at demand from the third quarter moving into the fourth with a focus on brand strength, the loyalty and performance of their key customers and the quality of management. Based on those metrics, Deckers is “the stronger investment across the board,” he said, and it’s cheaper.

Deckers sells UGG shoes, the popular brand that even garnered an Oprah endorsement. UGG accounts for 70% of the company’s sales, and business is good, especially with the release of new products that comes with every fall season. Deckers has done a great job of getting its shoes to its target customers, too, through high-end retail. Between the woman’s products and the international expansion, Cramer said, “I think there’s still a lot more room here for [Deckers] to run.”

Under Armour, however, has a great performance-apparel brand, but its footwear line is on “shaky ground.” CEO Kevin Plank said on his most recent conference call that integrating the two has been difficult. Not to mention, UA shoes are heavily discounted when they hit the shelves, which Cramer called “a major, major warning sign.” And even that much vaunted performance-apparel division is running out of growth, it seems, as competition from Nike and Champion eat away at market share.

Beyond the branding issue, Deckers has a stronger and more diverse customer base, better overseas exposure and a more positive sales outlook than Under Armour. And DECK trades at just 10 times 2011 earnings compared with UA’s 26 price-to-earnings multiple for the same year. Even when Cramer factored in Under Armour’s higher projected growth rate, Deckers was still cheaper. Also, DECK is up just 7% year-to-date, while UA is up 23%. 

The charts may look the same, but based on the fundamentals Deckers is a buy and Under Amour is a sell. 

“If you want a sports-apparel company,” Cramer said, “go buy Nike.”

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