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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerThis post is part of a series in which TheStockAdvisors.com asked financial experts to name their top stock pick if McCain or if Obama wins the election.
"Obama's tax plan would give greater relief to the lower and middle classes; one retailer that would benefit from this is American Eagle Outfitters (NYSE: AEO)," says John Reese, editor of Validea, which follows the investment criteria of "legendary" investors such as Warren Buffett and Peter Lynch.
"Consumers have had to tighten their wallets and purses because of the slowing economy and rising food and fuel prices. Breaks for average Americans would be welcome news for retailers, which have sputtered amid the downturn.
"In the event of a retail surge, this teen-focused Pittsburgh-based clothing chain should be at the head of the line.
"American Eagle gets approval from two of my Guru Strategies -- computer models that are each based on the published approach of a different Wall Street great. What's more, the two strategies that like the firm are modeled after two of the greatest gurus, Warren Buffett and Peter Lynch.
"My conservative Buffett-inspired model looks for stocks with a lengthy history of steadily increasing earnings, as well as a conservative balance sheet.
"Eagle has grown earnings per share in eight of the past ten years, with EPS rising from $0.25 to $1.82 in that time, meeting the first criterion. In addition, the firm has no long-term debt, which my Buffett model loves.
"The stock has also averaged a 24.5% annual return on equity over the past decade, a sign that it has the strong management and 'durable competitive advantage' Buffett is known to look for in his buys.
"My Lynch model, meanwhile, considers Eagle a 'fast-grower' -- Lynch's favorite type of investment -- because of its strong 33.8% long-term growth rate.
"A key to Lynch's approach was the P/E/Growth ratio, which he famously used to find growth stocks selling on the cheap. Eagle's P/E/G of 0.3 falls into this model's best-case category (below 0.5), a sign that it's a bargain.
"One more reason that an Obama win would help Eagle: Obama has said he won't support the renewal of the Bush tax cuts -- which include capital gains breaks -- meaning more investors may turn to dividend-paying stocks. And Eagle's dividend yield of 2.4% is quite attractive for a retail stock."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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