Now for something completely different: I was talking to a longtime hedge fund manager/source who goes long and short stocks (and who never goes on the record). He was one of my sources last year for the case against
, the air-bed company whose stock has since deflated. His specialty is retail: He was once a retail analyst for a well-known brokerage firm.
Called him the other day checking in. As usual, asked what he didn't like. (The guy had a fabulous call on
that I failed to mentioned months ago.) I also asked him what he liked, because he has had his share of winner longs.
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Turns out he's been buying a laundry list of apparel and retail stocks that nobody could give a hoot about (in part because none of them has a dot-com strategy). Most are down because the entire retail group has been trashed over economic concerns. "There are plenty of cheap stocks around," he says, "but these are unusually cheap in terms of price-to-earnings multiples relative to their growth rates, and all of them traded at 15 to 20 times earnings in the past year and a half. They're now all under 10. All have world-class brands and great franchises. And they've never sold at these multiples in the past 10 years."
The catalyst for a reversal? "There is none," he says. (Will the last daytrader please shut the door on the way out?) "At nine times earnings," he adds, "you just sit on them. They'll just continue to grow earnings per share."
Jones Apparel Group
, which has about $3 billion in revenue, several hundred million bucks in free cash flow, nine years of 20%-plus sales and earnings growth, "and it has never missed an estimate." Yet the stock is down to 22 5/16 from 35 7/8, "and they probably have the best management in the apparel industry."
Polo Ralph Lauren
, which has a little under $2 billion in revenue, "but it's probably the cheapest brand in the world because you could buy the whole company for $1.4 billion." Yet the stock is down by almost half to 14 5/8.
, whose sin was a slowing earnings and sales growth rate. Its growth has slowed to the 20% to 25% range, from 40% in 1998. Our source's thought: still good growth, albeit not what the Street wants to see. But with the stock trading at roughly one-third its 52-week high, if it simply makes its number and the group regains favor, he doesn't believe it would take much to jump-start the stock.
McNaughton Apparel Group
, a maker of women's apparel that is turning around. Two weeks ago the company reported annual earnings of $1.11 per share vs. original estimates of 91 cents per share. "I've never seen a stock that beat the Street by 20-plus cents per share and went down," he says.
, which has been slammed by a slowdown in comparable-store sales and a soft Christmas. Yet at 21 15/16, down from 48 as recently as November, he believes the downside is limited.
, which operates
and other discount stores. Again, hurt because of weaker-than-expected comp-store sales. But despite the stock's drop, earnings estimates haven't fallen. (Usually it's the other way for stocks mentioned in this column, especially those that are heavily shorted. Estimates are cut, and the stocks rise. It's that kinda market.)
Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at
email@example.com. Greenberg also writes a monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.