6 Mall Stocks That Could Rally

These stocks could see shares rally as a result of 2010's year-end sales numbers.
By Jonas Elmerraji ,

BALTIMORE (Stockpickr) -- We're almost through the holiday season, that time of year where consumers once again make en masse pilgrimages to America's malls to buy gifts for loved ones. As investors, that means it's worth looking at the handful of stocks that have the most to benefit in the short term.

That's why we're taking a look at

6 "Mall Stocks" that could see shares rally

as a result of 2010's year-end sales numbers.

To be sure, investing in

retail stocks

this close to the holidays isn't usually a very effective plan. The stock market is the ultimate pricing machine; as a result, the expected performance of these stocks is already priced into shares from the beginning.

Related Article:

7 Hot Gifts, 7 Hot Stocks

Another problem is the simplicity of buying retail stocks at this time of year. With so many investors piling into retail stocks in the fourth quarter, there are more than a few more sophisticated market participants who are willing to take the other side of those trades to capitalize on market mispricings.

But just because fundamentals-based market timing is rarely effective doesn't mean that there isn't a trade to be made. The stocks we're looking at today are pure consumer sentiment plays. With high P/E ratios, high-margin, consumer spending-driven income statements and

"darling" status

on Wall Street, these stocks actually do stand to gain quite a bit if consumer sentiment outpaces market expectations in the final month of 2010.

And I believe it will.

So

which stocks stand to benefit the most

?

Apple

For starters, there's

Apple

(AAPL) - Get Report

, the technology giant that's seen its shares rally more than 50% year-to-date at the hands of successful product launches and record sales. As 2011 approaches, investors should probably expect more of the same.

Apple's "mall stock" status comes from the company's retail division, a group that boasts more than 300 stores worldwide and some of the highest revenues per square foot of any retailer out there. Those retail stores are also effective proselytizers of Apple's brand and product lines; even if consumers opt not to buy products from retail store locations, they may still opt to beef up Apple's installed base by buying online.

Also impressive is the company's online iTunes Store, the world's largest music retailer and a division that's sure to be a major beneficiary of

gift card sales

this season.

Ultimately, retail is only one facet of Apple's business; the core will continue to be product development. But because its retail arms make up such a crucial part of today's distribution channel, expect an upward shift in consumer spending to deeply impact Apple's bottom line.

That's the hope of institutional sharholders like the

CGM Focus Fund

(CGMFX), a mutual fund that owns a stake in Apple in addition to large positions in

Ford

(F) - Get Report

and

Delta Air Lines

(DAL) - Get Report

.

Recently, Apple popped up in a list of the

10 best S&P 500 stocks of the decade

, and

Fortune

named it one of the

10 best stocks for 2011

. It was one of several

tech stocks hitting new highs

on Wednesday.

Chipotle

While many of the firm's thousand-plus restaurants are located within close proximity of shopping centers,

Chipotle Mexican Grill

(CMG) - Get Report

may not necessarily be the traditional image of a "mall stock." Nevertheless, the Mexican restaurant chain is an important sentiment-driven stock to watch right now. Chipotle stood out from the crowd in 2008 and 2009 as the chain continued to grow at a quick clip despite significant economic headwinds imposed on restaurant stocks across the spectrum.

Like Apple, Chipotle benefits from high revenues per square foot at its locations, the result of an average check of $10, a high for the so-called "fast-casual" restaurant space. The biggest barrier to growth for Chipotle right now is competition. The company's success has been met with other large restaurant companies launching their own fast-casual Mexican concepts, an especially difficult challenge given the simplicity of the company's menu. That said, Chipotle has built equity in being the first of its breed, and consumers continue to show a preference for the chain.

In my view, it's Chipotle's aspirational middle class target consumer that makes the restaurant stock even more attractive right now. After all, this group of diners has been more apt to part with cash of late, now that the economy has stabilized and futures are less uncertain than they were in 2008.

Granted, Chipotle is far from a value stock right now, but this firm still offers palpable upside as we approach 2011. Such is the belief of the

Buffalo Mid-Cap Fund

(BUFMX), a $713 million growth fund that owns a stake in Chipotle alongside bets on

Polo Ralph Lauren

(RL) - Get Report

and

Akamai Technologies

(AKAM) - Get Report

.

TheStreet Ratings rates Chipotle a buy, earning the stock a spot on its

Top-Rated Restaurant and Hotel Stocks

list, and it was one of the

10 restaurant stock winners of 2010

. StreetAuthority's David Sterman, however, says it'd be

crazy to buy the stock at recent prices

.

Abercrombie & Fitch

Another Buffalo Mid-Cap holding is

Abercrombie & Fitch

(ANF) - Get Report

, a loftily-valued stock that's the epitome of a sentiment play. Shares of this

apparel retailer

got understandably shellacked in 2008, but like many others the stock has rebounded hard this year, gaining 60% so far in 2010.

Abercrombie sells higher-priced clothing under its namesake brand, as well as complementary retail labels such as Hollister and Gilly Hicks. While the firm's sales were pressured in fiscal 2009 and 2010 (resulting in the closure of its Ruehl No. 925 store concept in January, in line with competitor

American Eagle's

(AEO) - Get Report

shuttering of its similar Martin + Osa stores this year), they're starting to show signs of a rebound.

Fourth-quarter revenue increased more than 17% in 2010, a statistic that's acting like a rallying point behind the stock as investors begin to get interested in this company once again. Strong sales performance this quarter should accelerate this stock's uptrend.

In the most recent reporting period,

added a position in Abercrombie

, which now makes up 2.9% of the total portfolio. The stocks was a recent

top retail pick of Jim Cramer

, who called the stock best of breed among teen retailers.

To see the rest of 2010's mall stocks, including

American Express

(AXP) - Get Report

and

Under Armour

(UA) - Get Report

, check out the

Mall Stocks Portfolio

on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

RELATED LINKS:

>>5 Top Stocks From 2011 Forecasts

>>10 Micro-Cap Value Stocks

>>Stocks With Lots of Cash, No Debt

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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.

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