I know, I know, with the economy sputtering, why would you ever want to be invested in an apparel company that produces expensive jeans? Let alone have it recommended by a typically short-selling trader like me! But before I tell you the name of this stock that despite the obvious economic problems -- strong oil, weak housing and the dollar, mounting foreclosure, etc -- is sitting right near all-time highs, looking to break out, let's do a quick rundown of its competitors in the apparel retail space. There's Polo Ralph Lauren Corp (NYSE: RL) and Lululemon Athletica (NASDAQ: LULU), which after substantial runups and crushing drops off their highs, have been trying to find their footing. Then there are steady downtrenders Under Armour Inc (NYSE: UA), American Eagle Outfitters (NYSE: AEO), Pacific Sunwear of California (NASDAQ: PSUN), Liz Claiborne Inc. (NYSE: LIZ) and Bebe Stores (NASDAQ: BEBE). And last but certainly not least, the stock-that's-gone-absolutely-nowhere-for-the-past-six-years-meaning-its-been-useless-for-both-longs-and-shorts The Gap Inc (NYSE: GPS).
And the winner for best apparel company that deserves your hard earned cash is True Religion Apparel Inc. (NASDAQ: TRLG), which at $23.75, is only $1 off its all-time highs. Ever since this clothing/jeans maker surged from $1 to $25 in just 18 months back in 2004-2006, its stock has been basing between $15 and $25. All the while short sellers have piled on, shorting over 10 million shares of the company's 17 million float.
With its latest solid earnings report and increased guidance, the stock broke to new highs on strong volume, no doubt worrying more than a few of those shorts. Trading with only a forward P/E of 15, which should drop to 12 or so (once analysts update to include the latest numbers) and booming sales growth in excess of 45%, this could become one mother of a short squeeze play, ideally breaking past $30, or possibly even $40 per share. Even if this breakout is just a fakeout, the downside appears limited around only 30% -- so with an upside potential that's double the downside, this stock is a good buy risk-reward-wise.
And let us not forget, second place in this category goes to Abercrombie & Fitch Co. (NYSE: ANF), which after some impressive gains, has been consolidating rather well, especially given the environment.
Disclosure: Timothy Sykes has no positions in any stock mentioned
Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, star of the TV show Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund.
With its latest solid earnings report and increased guidance, the stock broke to new highs on strong volume, no doubt worrying more than a few of those shorts. Trading with only a forward P/E of 15, which should drop to 12 or so (once analysts update to include the latest numbers) and booming sales growth in excess of 45%, this could become one mother of a short squeeze play, ideally breaking past $30, or possibly even $40 per share. Even if this breakout is just a fakeout, the downside appears limited around only 30% -- so with an upside potential that's double the downside, this stock is a good buy risk-reward-wise.
And let us not forget, second place in this category goes to Abercrombie & Fitch Co. (NYSE: ANF), which after some impressive gains, has been consolidating rather well, especially given the environment.
Disclosure: Timothy Sykes has no positions in any stock mentioned
Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, star of the TV show Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund.
Entrepreneur's Journal: Putting together a solid sales contract
The week in preview: Earnings from Walmart, Macy's, and other retailers
Six top trades for the rest of 2009
