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Take Your Position: The Gap

With shares of Gap right around break-even over the past 3 months, how should you trade this stock into – and in the wake of – earnings Thursday?

Once a bastion of style, lately Gap has struggled to get back into favor with the fashionable.

In fact, for the past year or so, Gap has struggled with sluggish sales across all its divisions — Old Navy, Banana Republic and the Gap — as consumers turn elsewhere.

It appears Wall Street isn’t terribly enthusiastic about this stock. According to the website Benzinga, three firms downgraded their rating on Gap ahead of earnings.

Raymond James analysts downgraded the Gap from an Outperform to a Market Perform rating. Caris & Company now has an Above Average rating, down from Buy. Citigroup analysts cut their price target on Gap's shares from $25.00 to $22.00. They now have a Hold rating on the stock.

Nonetheless, Gap is a widely recognized brand with strong presence in both the US and overseas. And the company has also reaffirmed its commitment to being a more consistent performer at a shareholder meeting.

As they say on Wall Street sometimes a stock is so bad, that it’s actually good? How should you trade?

Joe Terranova is cautious. “When you look at the last quarter inventories are up 9% while sales are up 3%.” That’s not encouraging.

Tim Seymour sees value in the Gap brand which he compares to McDonald’s. “In China its considered a prestige brand.”


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Trader disclosure: On May 16, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova Owns (OXY); Terranova Owns (XOM); Terranova Owns (KSS); Terranova Owns (BJ); Terranova Owns (DIS); Terranova Owns (TM); Terranova Owns (MCD); Terranova Owns (PEP); Terranova Owns (PFE); Terranova Owns (BAX); Terranova Owns (V); Terranova Owns (JPM); Terranova Owns (VRTS); Finerman and Finerman's firm own (AAPL); Finerman and Finerman's firm own (BP); Finerman and Finerman's Firm own (CMI); Finerman's Firm owns (IBM); Finerman owns (C); FInerman owns (JPM); Finerman's Firm owns (JPM) leaps and (JPM); Finerman's Firm owns (TGT); Finerman owns (UNG); Finerman's Firm is short (IWM), (MDY), (SPY); FInermans firm is long S&P Puts, Russell 2000 Puts;Weiss owns (UUP); Weiss owns (NS); Weiss owns (ETP); Weiss owns (COP); Weiss owns (DVN); Weiss owns (BRCM); Weiss owns (MRK); Weiss owns (AKAM); Weiss owns (DE); Weiss owns (NAV); Weiss owns (JPM); Weiss owns (HBAN); Weiss owns (NIHD); Weiss owns (HK); Weiss owns (TWM); Weiss is short (X)

For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
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Virtus Investment Partners Owns More Than 1% Of DOMINO'S PIZZA UK & URL PLC
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For Brian Kelly
Accounts Managed By Brian Kelly Capital Own (TLT) Calls”
Accounts Managed By Brian Kelly Capital Are Long Australian Dollars
Accounts Managed By Brian Kelly Capital Own (AGO)
Accounts Managed By Brian Kelly Capital Own (EBAY)
Accounts Managed By Brian Kelly Capital Own (MCP) Calls
Accounts Managed By Brian Kelly Capital Own (BHP)
Accounts Managed By Brian Kelly Capital Are Short Yen

For Mike Khouw
Cantor Fitzgerald is a market maker in (RIMM)

For Colin Gillis
*No disclosures

For David Riedel
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