If you thought specialty retailers, with their slave-to-fashion business model, were risky, try the teen stores.
As Cramer explained on Thursday, the hedge funds love to track the specialty names and trade their stocks on the latest same-store sales data, product lines or “it” clothes of the season. But companies that sell to teens deal with an even more fickle bunch—the teens themselves.
At an age when kids are as capricious as it gets, it’s hard to keep pace with their changing tastes. Hence the volatility in this space. Cramer’s recommendation then is to stick with the cool kids, in this case the triple As: Abercrombie & Fitch , Aeropostale and American Eagle .
You could try a Pacific Sunwear or a Hot Topic , but their customer base isn’t as big at the triple As, who sell more traditional, preppy clothing. Not to mention, PacSun and Hot Topic tend to sell things bought by teenagers and not the teenagers’ parents. And in this economy, it’s a better bet to sell to the parents than the kids.
Even in that cook click, though, there’s still a coolest of the cool. Cramer thinks that’s Abercrombie. This company offers the most growth, with November same-store sales soaring 22 percent compared to the mere 6 percent expected by analysts. Plus, ANF is a great incubator of new concepts, a la J. Crew , as its Hollister and Gilly Hicks stores are doing well. And there’s growth overseas coming from accelerated rollouts in Japan and Denmark.
Cramer also said that ANF’s margins have been improving and leave still more room for improvement. He also praised the company’s low inventories, which leave Abercrombie is a better position this holiday season. It won’t have to discount merchandise to empty its warehouse shelves, and that translates into more profits.
The stock reached a new high on Thursday, but Cramer thinks the valuation is still reasonable. SNF trades at 21 time next year’s earnings with a 20.4-percent growth rate.
Of course, Cramer never likes to chase a stock. He recommended waiting for a pullback.
“Maybe we get a weak unemployment number tomorrow,” he said. “Think of ANF. It won’t have much to do with unemployment, but it’ll be knocked down by the S&P 500 futures.”
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