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If the Shoe Fits, Buy It: Footwear Stocks to Watch

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You might say the future of Crocs (CROX) is perfectly clear. At least that's what Sterne Agee analyst Sam Poser tells Breakout when asked to explain why he not only maintains his buy rating on the funky footwear company after its stock has gone from $2 to $25 in the past three years but actually just raised his price target to $30.

"Ballerina translucents," Poser says, as he list a few of the new Crocs products that are driving sales. "And the new Chameleon, too."

You can practically hear the kids clambering already and, therefore, the retailers, too.

And that's actually part of the continuing Crocs turnaround story, Poser says, pointing to past disappointments by the retailer after the first period of meteoric growth. But a new management team and some key divestitures combined with an ever-growing product line could point to a winner. It is an expensive winner, Poser concedes; it's trading at 21.3 times this year's estimated earnings. But Poser thinks it will still be able to beat his high-on-the-street expectations.

"I don't see another stumble happening," he says. "It's a different company with different people than it was in 2007 and 2008."

Indeed it is. Those original rubbery Crocs clogs now account for only 15 percent of the business, Poser says.

In many ways, Deckers Outdoor (DECK) is a similar story, at least in its meteoric share price move over the past year. Poser is also unflinching and buying the stock. In fact, as his top pick, you could say Deckers has even bigger shoes to fill than rival Crocs does and that they will need to take their Ugg brand to places never dreamed of.

"Ugg accounts for 80 percent of their business," Poser says. "But the classic Ugg boot is now only 15 to 20 percent of sales."

That's because, again, this trendy footwear company has expanded its product line of slippers, sandals and flip-flops, and even added an Italian line called Avina.

In addition, Poser says the internalization of a large chunk of its European marketing effort, as well as a sharp increase in retail outlets (from 18 to 27 with 15 more in the works), could help the stock rally to $120.

To help it get there, Poser says a steady and reliable stream of new products via development or acquisition will be needed. Last month Deckers offered $150 million for the Sanuk Sidewalk Surfer franchise. The deal is still pending but Poser writes that it could be a $100m brand within three years.

And finally we tried on a pair of Skechers USA (SKX), which Poser rates a sell on expectation they will lose $0.16 per share this year. His pessimism on the stock is partly based on precedent.

"They [Skechers] got carried away, as Crocs did, with over-saturating the market," Poser says.

Further adding to his concerns is that Skechers is heading right into the deep end of the competitive pool with its new products as they "switch toning over to performance, running and training."

"They owned toning" but are now "walking straight into the Nike, Adidas, New Balance, Asics" of the world.

Furthermore, Poser says the maker of skateboard sneakers is "sitting on $100 million of excess toning inventory" and also has not spent enough time on product development.

A look at a 5-year chart of Skechers clearly shows that investors are all too familiar with heartbreak and euphoria. For the record, if you think (SKX) looks cheap here and that it might be time to step in, Poser says it's going to $10.

What do you think? Is it time to tread lightly in the footwear patch or to jump in with both feet?

Let us know in the comments section below or shoot us an email to BreakoutCrew@Yahoo.com.

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