While the correction has been brutal, there are definitely many good stock values now. Although, it is still important to remain cautious and focus on those companies that have near-term catalysts.
To this end, it’s a good idea to look at the back-to-school retailers. In fact, according to research from BMO Capital Markets, it looks like the season is getting off to a strong start. What’s more, there should be continued momentum into the holidays.
So what companies look attractive? Here are my picks:
The Children's Place Retail Stores: The company operates a chain of nearly 1,000 stores in the US and Canada. The focus is on value apparel for children (those 10 years old and younger).
As a sign of the strength of its product line, Children’s Place has been able to increase prices twice over the past year. Then again, the company has been adept at keeping ahead of some of the major industry trends.
Children’s Place also generates substantial cash flows, which came to $207 million in 2010 (the sales were $1.7 billion).
Express: The company operates over 590 stores, usually in high-traffic malls and lifestyle centers. The apparel is focused on the cutting-edge – that is, the kind of things you would see in Vogue and GQ.
To maintain its competitive edge, Express has over 50 designers in its New York design studio. And a key part of the strategy is to engage in interactive testing, which helps to get a sense of customer trends.
For the most part, Express has been able to maintain its pricing power. Actually, in the latest quarter, the comparable store sales were up 8% and operating margins increased from 12% to 14.9%.
American Eagle Outfitters: With 930 stores, the company focuses on the 15-25 year old demographic. Essentially, the strategy is to provide quality apparel at affordable prices.
With its strong cash flows, American Eagle has been reinvesting back into its business, such as with a stronger product line as well as improved store formats. For example, the company should be positioned nicely to benefit from the urban hipster look.
At the same time, the company is selling at a relatively cheap valuation, with a price-to-earnings ratio of 15. The dividend yield is also 3.80%.
Abercrombie & Fitch: It looks like the company has continued to demonstrate its ability to be a fashion leader. As for this year, the popular trend is the “collegiate prep” look, as popularized on the CW Network’s "Gossip Girl." There should also be lots of traction in the denim business.
Keep in mind that ANF’s affluent customers should continue to spend, even if there is a slowdown in consumer spending. Besides, the company is posting healthy growth rates in global markets
Hilary Kramer has 20+ years of experience on Wall Street, first as an analyst, then as a portfolio manager, investment banker and hedge fund manager. She is editor of GameChangers, Breakout Stocks Under $5 and High Octane Stocks. You can learn more about her stock picks as well asher latest buy and sell recommendations here.
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