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10 Fad Stocks That Bounced Back in 2010

Lululemon Athletica (LULU - Get Report)

Company Profile: Lululemon designs and markets healthy lifestyle inspired athletic apparel, which is sold through a chain of corporate-owned and operated retail stores, independent franchises and a network of wholesale accounts.

Current Share Price: $68.49 (Jan. 6)

2010 Share Price Gain: 126%

Comeback Story: Lululemon rode on the back of yoga's increased popularity, particularly among women. After becoming a public company in July 2007, shares rose as high as $55 in October 2007. However, a New York Times article in November 2007 claimed that tests showed that Lululemon's VitaSea clothing line, which the company said was made with seaweed, showed "no significant difference in mineral levels between the VitaSea fabric and cotton T-shirts."

Combined with the effects of the recession, shares of Lululemon fell below $5 in early 2009 before making an astounding comeback. Shares of Lululemon hit an all-time high of $74 last month.

In December, Credit Suisse analyst Omar Saad initiated coverage of Lululemon with an "outperform" rating and $85 price target, despite the lofty valuation of the stock. Saad said Lululemon could become the next Coach (COH).

"We have not seen a brand excite and attract the female consumer to this extent since Coach in the early 2000s," Saad wrote. "Women's has always been one of the toughest categories to generate consistent results, and we have witnessed countless women's fashion companies rise and fall over the past decade. However, it seems Lululemon has discovered the elusive formula to unlock the mystery of what woman want to wear and how they want to buy it."

Krispy Kreme Doughnuts (KKD - Get Report)

Company Profile: Krispy Kreme Doughnuts, as the name implies, sells doughnuts and related items through company-owned stores.

Current Share Price: $7.04 (Jan. 6)

2010 Share Price Gain: 134%

Comeback Story: In April 2000, Krispy Kreme went public, touting increased profits due to the popularity of its glazed doughnuts with consumers. The rapid expansion carried the company for a few years until the stock collapsed in 2004, falling from $40 to $12. In 2005, CEO Scott Livengood was removed from the job after the Securities and Exchange Commission probed Krispy Kreme for alleged improper accounting. Livengood denied these claims, instead attributing the company's decline in profits to another fad: the low-carb craze.

However, Livengood was slapped with shareholder lawsuits following accusations that he and the company were involved in self-dealing. Shareholders alleged that Krispy Kreme paid a premium to acquire a franchise that Livengood's ex-wife partially owned.

"There was a real faddish time with Krispy Kreme, and the company had to restructure to pay off lawsuits," says Hodges. whose Hodges Small Cap Fund holds a position in Krispy Kreme as of Sept. 30. "But they had a turnaround expert come in and re-establish the business. They closed unprofitable stores and returned to a more realistic base of what the doughnut business can make."

"It's not hugely profitable, but now they're making money," Hodges adds. "Those doughnuts will never be the craze it was, but people are going to continue to eat doughnuts."
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DECK $56.35 0.55%
CROX $8.06 0.25%
JMBA $12.82 -0.23%
LULU $62.81 -0.95%
KKD $16.86 0.24%


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