Getting Giddy on the Gap

"We believe Gap has the means to further accelerate its improvement in performance," Jaffe said in his note.

Over the Thanksgiving weekend, Wedbush Morgan Securities analysts performed their annual "Mall Crawl," observing holiday spending at retail stores around the nation. Wedbush Morgan analyst Adrienne Tennant said the firm was encouraged by what it saw in Gap stores. The stores had good amounts of foot traffic and had all of their cash registers running, she said.

"We're positive on them," said Tennant, who has Gap shares. Wedbush Morgan upgraded Gap to buy last month.

The positive buzz around the company helped send its shares up early Tuesday. However, Gap followed the market down in the afternoon, closing off 24 cents, or 1.5%, to $15.75. Since bottoming at $8.84 on Oct. 7, Gap shares have risen nearly 78%.

Tennant's upbeat assessment of the Gap followed that of Gerard Klauer Mattison's John Morris, who upgraded the stock from neutral to buy on Monday. Morris said apparel sales have started off stronger than expected, and Gap in particular has been able to win customers by improving the style and quality of its clothes.

The company's shares may do well in the short term, especially following its November same-store sales numbers, SG Cowen analyst Lauren Cooks Levitan wrote in a research note on Tuesday (she upgraded Gap shares to market outperform from market perform; her firm intends to seek investment banking business from the Gap). But Levitan said that the company still has long-term concerns.

The same-store numbers are helped by the fact that the company performed so poorly last year, when the same-store figures fell by 25% in November, she wrote. The company also faces increased competition from mass merchants such as Target (TGT - Cramer's Take - Stockpickr) and is still having trouble differentiating its brands, she said.