Specialty Retail Winners & Losers

Jeff Macke

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Specialty retail is where love goes to die. The stocks are meant to be casual hook-ups, not the names you start touting to mom and dad.

I say things like that all the time, knowing most people won't listen. It's impossible to tell someone in the throes of stock-doubling passion that Hot Topic (HOTT) isn't a turnaround story, RadioShack (RSH) is neither a buyout nor a real estate play, and Gap (GPS) will never, ever, rediscover its mojo. Catching fashion cycles and investors' fancy is a difficult trick to pull off once. Turning the trick quarter after quarter is all but impossible.

So it was with some trepidation that Breakout welcomed Brian Sozzi of NBG Productions to discuss specialty retailers with stocks that are lovable right now, today, for tomorrow is promised to no one.

Sozzi starts with everyone's darling of the moment, Lululemon (LULU), a company which nicely illustrates the problem facing those seeking value in specialty. "Valuation is never going to be intriguing to the normal investor," says Sozzi. It's a nice way of saying folks looking for cheap stocks don't buy stocks trading at 48x trailing earnings.

In the jock-stock vein, one of Sozzi's favorite all-around picks is Foot Locker (FL). An exception to the rule of trendy specialty, Foot Locker has the benefit of drafting off trends in athletic footwear, whatever they may be. When shoe and apparel giant Nike (NKE) has a huge quarter like the one just posted, Foot Locker is the beneficiary. At a relatively lean valuation, FL is a way to play specialty without paying stratospheric prices for chic brands.

Sozzi has other names off the beaten running trail for your consideration in the attached clip. Check them out and let us know what you think in the space below or hit me up on Twitter @jeffmacke.

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