This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

3 Stocks Under $5 Trading at Huge Discounts

Talbots

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

It's been a slow road to ruin for women's apparel retailer Talbots (TLB). Shares have fallen from $25 in 2007 to $16 in 2010 all the way to a recent $2.50. At the current prices, the vultures are circling. The steady demise is the result of a series of merchandising missteps that sought to attract younger buyers. The fashion changes have been axed, and the current line-up of clothes reflects a return to more traditional roots. Still, the damage to the brand is done, and it will be a while before customers flock back to the stores in high numbers.

Acknowledging the new harsher reality, Talbots is closing more than 100 of its worst-performing stores (out of a current 580), while also expanding a set of revamped stores that evoke a French-couture environment.

>>5 Black Friday Short-Squeeze Stocks for 2011

Before any of this can happen, private-equity investors are circling while shares are so cheap. In early August, Sycamore Partners announced it had amassed a 9.9% stake in Talbots, with plans to discuss steps to unlock the stock's value with management. The stock temporarily rebounded $4 before pulling back again. That pullback may be due to a "poison pill" provision that makes it harder for anyone to pull off a hostile takeover. At this point, it's not clear if an outright sale will take place, or management simply stays the course and rebuilds the tattered reputation.

How cheap is this stock? Talbots earned nearly $2 a share every year back in the first half of the last decade. Assume peak earnings power will only rebound to half that level, and this still trades for less than three times potential profits.

>>20 Highest-Yielding Retail Stocks

The key to owing retail stocks is finding business models that have stumbled that aren't broken. Pier One Imports (PIR) struggled mightily in 2008, and its shares fell to 10 cents in early 2009 before management implemented a back-to-basics turnaround strategy. Shares have rebounded all the way to $13. Teen-focused retailer Aeropostale (ARO) saw its shares plunge below $10 in September, but a modest upturn in business trends has quickly boosted the stock back to $17. It's still unclear if Talbots will experience a similar renaissance, but the potential upside for these turnaround retail plays is simply too large to ignore.

3 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,172.68 -107.06 -0.62%
S&P 500 1,994.29 -16.11 -0.80%
NASDAQ 4,527.6890 -52.10 -1.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs