3. Abercrombie & Fitch ( ANF) is a specialty retailer focused on the teen demographic.

Abercrombie's fiscal third-quarter adjusted earnings of 56 cents, representing 37% year-over-year growth, beat analysts' consensus target by 11%, signaling business momentum. But, the gross margin declined from 72% to 70%, dismaying analysts. Investment bank Jefferies considers Abercrombie the best cyclical specialty retail play. It is forecasting a rise of 70% to $85. Yesterday, Abercrombie shares rallied an impressive 4.2% as the S&P 500 climbed 0.8%.

Goldman isn't as bullish as Jefferies, but it does expect Abercrombie to outperform in 2011. The bank's $70 price target implies 41% of upside to the stock. Although Abercrombie's stock has gained 60% in the past 12 months, Goldman believes that, on the basis of its gross profit per foot and stock price before the recession, Abercrombie is still notably undervalued and at the onset of a major profit growth cycle as it regains its popularity in the U.S. and expands overseas.

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