Three Retail Stocks to Buy before Christmas

by: Jared Schneider December 02, 2008 | about stocks: BARE / HWD / M    

Jared Schneider

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We are entering the holiday season with the financial crisis still at large. With so much damage already done in the stock market, many stocks have become way undervalued. Value Investing is the best way to make money while hitting rock-bottom prices.

My mission was to find a few consumer-based stocks that are largely undervalued and will do well in the next 9-18 months. Although many analysts have knocked down companies' stocks because they expect weak 2008 holiday sales, the magnitude of these drops in stock prices has been greatly overstated.

When the market rebounds, so will these stocks. Also, when the individual companies begin to beat earnings estimates again, the stocks will go even higher. This process will take a long time, but if you have patience, investing in these stocks will make your portfolio shine.

3 Rocking Stocks to Buy Before Christmas 2008

  • Bare Escentuals (BARE) - This natural cosmetic and skin care company has all of the right stuff. They are well positioned in a number of cosmetic stores like Sephora; they also have their own retail and catalog sales. Being natural gives them the eco-friendly and healthy image that so many consumers are looking for. Since they only have a market cap (market value) of $412 million, they have a lot of room to grow compared to Estee-Lauder (EL) with a $5.6 billion market cap. At $4.50 a share, BARE's stock has an extremely low P/E of 4.2x earnings. Once the economy picks up again, this company is poised to take some serious market share.
  • Harry Winston Diamonds (HWD) - The famous, ultra-luxurious jeweler has suffered recently because even the wealthy are feeling the pinch. The name of this company carries a certain prestige that I believe will last forever. At $4.02 per share, this stock has a P/E of 1.3x earnings! That's almost as cheap as stocks can get. To make the stock a little more attractive, HWD has a nice dividend as well.
  • Macy's (M) - Macy's has struggled with this market like most department stores, but this 150-year-old store is still in excellent financial shape. It is not riding on tons of debt like many of its peers do. Macy's stock price has a P/E of 4.2x earnings at $7.03 per share. It will come out of this economic crisis just like it did in the past.

Keep in mind that in a normal stock market, most stocks trade at P/Es between 12x-20x earnings if they are not a high-growth company, so even if the companies' earnings are mediocre, then the stock market will price these stocks at this range when the bear market begins to disappear.

It's hard to lose when you buy stocks that are priced at rock-bottom prices and have great potential in the future. Remember that you must be willing to wait out the storm with these stocks, and you can thank yourself later.

Disclosure: no positions

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This article has 8 comments:

  •  
    Dec 02 08:01 AM
    rocket science...pure and simple
    Reply | Link to Comment
  •  
    Dec 02 08:28 AM
    Macy's? If you call $10 billion in debt with a $1 billion due in 2010 excellent financial shape, you have missed the mark. And Macy's has a history of bankruptcy, so to say it will come out like it did in the past is to show ignorance of the history of this franchise.
    Reply | Link to Comment
  •  
    Dec 02 02:48 PM
    You're kidding, right? Nope! It isn't April Fools Day..... Gee, I just don't get the joke...... Guess I'm kind of slow.

    jegan
    Reply | Link to Comment
  •  
    Dec 02 02:49 PM
    I must disagree on the reasoning behind Bare Escentuals. They have no MOAT. Every major make-up manufacturer now has a mineral make-up line. Yes, Bare Minerals does have a few competitive advantages, but none of them are strong enough to build brand loyalty among their customer base, especially if a competing product can give similar results for less money.
    Reply | Link to Comment
  •  
    Dec 02 02:52 PM
    Macy's is earning money, has positive cash flow, and has access to a revolver which can cover next year's maturity if necessary. Of course, it could also re-fi if the debt markets open up again...
    Reply | Link to Comment
  •  
    Dec 02 05:27 PM
    I agree that BARE is a great buy... once the economy rebounds a little, this company will have greatly paid down their outstanding debt and will be a force in Cosmetics with their loyal brand following. They are supposed to add more than 100 new items to their product portfolio next year in other skin care areas and are experiencing good international growth. Also, even though their own boutiques have not done well lately...long term, this lets BARE control their own fate more so than depending heavily on the Sephora and ULTA's of the world.

    I would just like to see some insider buying at these levels to scare off some shorts...but have not seen any yet.

    2-3 years from now, this is an easy 3-4 bagger...

    Be sure to check out Jones Soda as well...JSDA... is selling for much less than their cash on hand (with no debt) and insiders have started scooping up some shares lately...
    Reply | Link to Comment
  •  
    Dec 03 01:23 AM
    I have to agree. While Macy's is a good deal on a PE basis they have a heavy debt load. Better buys out there.

    HWD looks the most interesting. Debt seems manageable. They seem to beat the estimates. Worst estimate is $4. So that incredibly low PE even if we are off by 50% on earnings estimates is still incredibly low.
    Reply | Link to Comment
  •  
    Dec 10 09:55 AM
    Well I guess a 25% gain since I called Macy's a buy isn't very good is it? I like 25% in a week and a half. Maybe you don't like gains like that.


    On Dec 02 08:28 AM MagicCJA wrote:

    > Macy's? If you call $10 billion in debt with a $1 billion due in
    > 2010 excellent financial shape, you have missed the mark. And Macy's
    > has a history of bankruptcy, so to say it will come out like it did
    > in the past is to show ignorance of the history of this franchise.
    Reply | Link to Comment
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