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Finding a Bargain in Sharper Image

Editor's note: This Stocks Under $10 alert was originally sent to subscribers Nov. 15 at 2:59 p.m. EST. It's being republished as a bonus for and readers.

The holiday shopping season officially begins Nov. 24, the day after Thanksgiving, otherwise known as Black Friday. But the fireworks have already begun in the under-$10 niche of the retail sector, as Reuters reported Tuesday that Danish investor Jakup Jacobsen is preparing a bid to purchase Pier 1 Imports (PIR - Get Report).

The home-furnishings retailer gained slightly more than 20% on the session Tuesday, closing at $7.62. However, the stock, which was recently trading at $7.44, remains about 20% below its June highs, as the company is on track to lose $1 a share in fiscal 2007 (ending February). Even so, Jacobsen, who bought Pier 1's British and Irish stores in March, found value in the retailer's stock at these depressed levels.

In addition to Pier 1, Eddie Bauer (EBHI) received a $286 million cash bid from a group of private-equity firms this week. Golf Galaxy (GGXY) was also bought out Monday by Dick's Sporting Goods (DKS - Get Report) for $225 million, or a 20% premium.

With that in mind, we've scoured the under-$10 universe looking for other retailers that could hold value ahead of the holiday shopping season. Our search has turned up an attractive turnaround play, as well as another name that investors should avoid at current levels. We are not taking any action in this Alert.

First up is Sharper Image (SHRP), a specialty retailer whose shares have recently returned to the single digits where they started the year, despite trading as high as $16.21 in April. The stock closed Tuesday at $9.92, and was recently changing hands around $10.31.

Sharper Image, best-known for its Ionic Breeze air freshener, is currently going through a management overhaul. Founder and CEO Richard Thalheimer stepped down in September because of an options-pricing scandal. Then, just last week, the company's two other top executives, COO Tracy Wan and CFO Jeff Forgan, also abruptly resigned.

Sharper Image is now being run by interim CEO Jerry Levin, who was nominated to the retailer's board of directors this summer by activist shareholder Knightspoint Group. Leven brings experience gained from running other consumer firms such as Burger King, Haagen-Dazs and Revlon.
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