analyst Stephen Kim is flying solo for the first time in his career.
After three years working with analyst
following home builders, the 28-year-old Kim picked up his own retail group in early April. While it's too soon to gauge Kim's performance with companies like
, he had a skillful enough record with home-building companies that Smith Barney promoted him instead of losing him to another firm when he received a job offer last summer.
From March 1995 to June 1996, the period Kim says he actively followed the home builders, five of the seven stocks that he covered outperformed the
. Moreover, Smith Barney's salespeople ranked Kim in the top 25% of the firm's analysts, according to an in-house poll.
Despite his relative youth, the
-educated Kim worked for
Donaldson Lufkin & Jenrette
before taking his room with a view at Smith Barney. He joins the ranks of Smith Barney's other well-regarded retail analyst
, known for being ahead of the curve -- a fact she demonstrated when she downgraded
before the pack. And
, Smith Barney's vice president of research, is often quoted in
Women's Wear Daily
, a widely read industry journal.
When picking stocks in a consumer-oriented group like retail, Kim likes companies that either have strong demographic support or that tap into trends, like Americans' penchant for casual dressing and less expensive clothes.
"In specialty retail, there's always something cooking," he says. "There's always an idea you can play. Even if people are concerned about a downturn in the sector, there's still momentum in some area." He cites the teen retail stocks that have enjoyed grown-up gains recently as one example.
Kim started his coverage with 10 companies, choosing to narrow his universe so he could begin delivering recommendations sooner. His choices cover three distinct areas: specialty apparel companies like the Gap; off-price retailers like
; and cataloguers like
He's willing to go against the tide. Although several pundits, including
, have applauded
turnaround effort, Kim rates it neutral. The stock has gained 39% to 24 since
wrote a positive story
Jan. 31 about the blue-blazer retailer. Re-enforcing those views was a 7.4% same-store-sales gain in March.
"There are a lot of great things happening at AnnTaylor," Kim admits. "But you're not getting it that cheap anymore." The company trades at 66 times trailing earnings, compared with an industry standard of 22.
Another hitch: The lines that have been selling well this spring are the leftover vision of former Chief Executive Sally Frame Kasaks, who resigned in August. "New management hasn't made an impact yet, and the stock has already reacted," Kim adds.
Another contrarian position for Kim is
, which he rates outperform. He has a 12-month price target of 40, a 50% gain from its Friday price of 26 5/8. The retailer of casual women's clothes (think lunch at the club) has been struggling to drive its business from a sand trap of sorts.
But after it reported flat same-store sales in February, saw a mere 1% rise in March and warned the Street that April looks worse, several securities firms cut their ratings, including
Rodman & Renshaw
"Talbots will be a second-half mover," Kim insists. "It has quality management, a strong brand and it's trading at fire-sale prices. It's the cheapest in the group, yet on a historical basis it's managed shareholder returns better than any of its competitors."
And what about the drippy same-store sales? Kim points out that Talbots requires its stores to be open a full
year, not just the standard 12 months, before sales count toward same-store-sales percentages. With a fiscal year that ends in January, a Talbots store that opens in March must wait almost two years before it begins recording same-store-sales gains.
Here is Kim's coverage as of April 10:
, Lands' End,
, Gap and TJX.