Dow Jones Industrial Avg. 12,380 (UP) Week ending 04-08-2011
We have all heard about the
meteoric rise in the price of
Cotton. Demand is steady and in high volumes to
China, India and Pakistan.
What the newsmen have not told you is that demand for
cotton has actually
dropped by 7 million bales since
2006. This is similar to another commodity,
Oil , where speculation has driven the price higher, while worldwide demand is leveling off.
As we have all seen in the
housing market,
speculation or what
Alan Greenspan called
"Irrational exuberance," eventually comes to an end and prices return down toward the "
mathematical mean" price. When this happens with cotton, it will be a windfall to some well run apparel retailers.
Easter being late
in April this year is also going to create soft sales numbers for apparel retailers for their
Q1 2011 number comparisons to
Q1 2010 figures. Q2 numbers on the other hand, should be excellent comparisons. Here are a few names that should benefit from this phenomena. I would buy them now and hold into the
Christmas holiday.
Aeropostale Inc. (Symbol ARO, $25.62) even without cotton prices going down currently has a
Return on Equity of 49.2%. ARO also has a
5 year sales growth of
15.31% and
5 year earnings growth of
31.85%. Sometimes you need to shop in the off season to get investment bargains. Don't forget that this stock's share price is up
91.51% over the last 5 years.
Limited Brands Inc. (Symbol LTD, $37.17) is projecting
2012 earnings of
$2.31 and
2013 earnings of
$2.64 per share.
LTD has
Return on Equity of 42.5% and offers a too reasonable dividend of
2.15%. This stock has a
three year total return of
132%. March sales have been surprisingly strong against lowered expectations with a backdrop of unusually cold weather, bubbling gasoline prices and the shift of Easter into April.
Urban Outfitters Inc. (Symbol URBN, $30.91) is a company to like for a lot of reasons.
2012 earnings are projected at $
1.74 per share and for
2013 looking like
$2.08 a share. Urban has a great balance sheet with a
Current ratio of 3.81 to 1 and has
no long term debt.
This company with a
5 year sales growth rate of
16.15% is a real bargain at this "off the rack" price. These three are all quality investments; a piece of the puzzle.
These are 8 month investments, so don't worry if they bounce up and down in price between now and then.
Just pick one out and go with it.
Freewilly
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