Small-Cap Holiday Gems

11/12/2004 12:00 am EST


Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

"Bigger isn’t always better, particularly when looking for opportunities in the retail sector," says Bernie Schaeffer in his exceptional premium service, Schaeffer’s Gold . "With the holiday season just around the corner, here are a few smaller cap gems for your shopping list."

"When you think of retailers, your first thought is probably, most naturally, Wal-Mart. But as you look for trading opportunities in the retailing sector, remember that bigger isn't always better, and a lesser known name could possibly be a profitable ace up your portfolio's sleeve. Unless you have teenagers or 20-somethings living in your household, there may be a few gems in the retail group about which you're unaware.

"Bebe (BEBE NASDAQ) is an upscale, trendy retailer for young women. It has roughly 200 stores in the US, the UK, and Canada. Its market cap is $1.4 billion. Revenue growth is 15.1% and earnings growth is 75.2%. October same-store sales rose +30.6%. The stock has outperformed the S&P 500 index by 75% over the past 52 weeks. Skepticism lingers on BEBE despite its impressive sales numbers, solid relative-strength performance, and earnings growth. More than one-fifth of the stock's available float for public trading is sold on the short side and 50% of the analyst ratings on the stock are ‘holds’ or ‘sells.’ Meanwhile, the stock has recently leapt to a new all-time high, taking out potential double-top resistance at the 33 level, which defined a peak in April 1999. Since mid-August, BEBE shares have appreciated in value by nearly 120%. And the signs of lingering pessimism suggest that this rally may not be spent just yet.

"Urban Outfitters (URBN NASDAQ) has 60 eponymous stores that target trendy, metropolitan 20-somethings, while its line of Anthropologie stores offers apparel and housewares that appeal to slightly older women. Its market cap is $3.52 billion. Revenue growth is 29.7% and earnings growth is 76.5%. Third-quarter same-store sales were up 18.0%. URBN has outperformed the broader market by nearly 127% over the past 52 weeks, all the while growing its revenue and earnings numbers at a noteworthy pace. Despite these impressive technical and fundamental factors, options players have not been optimistic. Additionally, the 6.6 million shorted URBN shares, which account for 13% of the stock's float, would take more than a week to cover at the stock's average daily volume. Wall Street is rather cautious on this retailer, with only five ‘buys’ out of 12 analyst ratings. On the technical front, URBN has been on a path to new all-time highs since January 2003, increasing more than 10-fold in value in less than two years. In today's session, the stock made additional headway into uncharted territory. Throughout its impressive rally, URBN has found support from its ten-week and 20-week moving averages.

"American Eagle Outfitters (AEOS NASDAQ) caters to 16-to-34 year olds through its growing chain of over 800 stores in the US and Canada. It has a market cap of $3.07 billion. While AEOS hasn't enjoyed the revenue and earnings growth of BEBE and URBN, it does sport impressive sales growth of late and the stock has put in a good showing compared to the overall market. While revenue growth is just 3.9% and earnings show a decline of 32.4%, October same-store sales rose 29.2% and the stock has outperformed the S&P 500 by 125%. Short interest comprises almost 6% of the stock's float. What's more, under 50% of the analyst ratings on AEOS shares are ‘buys.’ American Eagle Outfitters notched a new annual high in today's session and recently topped its July 2001 peak. Technically, the stock has mounted a solid uptrend since last December, rallying more than 180% during the past 11 months. The equity's ascending ten-week and 20-week moving averages have helped guide the security higher during this time frame."

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