The Retail Ride: What a Trip

• ByJonathan Heller, RealMoney Contributor
• On 12:00 pm EDT, Friday August 28, 2009

I'm still amazed at the ride many retail stocks have had over the past nine months. Many were given up for dead this past November, while others hit bottom when the market did in March. Several traded at the price of cheap call options -- that's easy to say now, but the truth is, sinking money into these at the time was a scary proposition. Of the five retailers I bought during that time (excluding restaurants) only one remains in my portfolio -- Cabela's, a company most people love to hate for various reasons.

My typical retailer positions were taken with some sort of deep value angle, a concept that is truly in the eye of the beholder. I owned craft retailer A.C. Moore, up 368% since bottoming in November at 77 cents a couple of times, as well as closeout retailer Tuesday Morning, an 8-bagger since bottoming in March at 57 cents. What both of these names had in common, and the reason I took positions, was that both were net/nets (trading below net current asset value), a strategy I closely follow and write about frequently.

Given the lack of conviction I had in these company's ability to survive and in the markets, I used trailing stops. I made money in both but was eventually stopped out. The volatile price swings in these company's was no match for the level of the stops I typically set.

I also owned Saks, an upscale retailer with dreadful numbers but a compelling portfolio of valuable real estate. Saks bottomed at around $1.50 in March and has been a little better than a 4-bagger since. After owning this a couple of times, I wrote some calls and made a decent premium, but had the stock called away. The stock has run up 55% since early July, and I'll be looking for a re-entry point.

Cabela's, the mega-store outdoor sporting goods retailer, is up 225% since bottoming in November. Part bank, part credit card company, part retailer, part real estate operating business, this description tells a lot about why this company has been so disliked. I love Jim Cramer's January description of the company as a "walking heart attack." I'd love to hear Jim's current thoughts on Cabela's, and perhaps he'd be so kind as to post something on this in Columnist Conversation.

Although overall results have been pretty good throughout this recession and the company has had no quarterly losses, charge-offs in the credit card business have been rising, hitting 4.62% in July. I'm hoping that management ultimately sells off this business. In the meantime, I'm re-evaluating my position, having made some nice gains.

Jones Apparel is one of the most amazing stories of all. This S&P 500 company had stumbled a bit in recent years but with some great management changes seemed to be on the comeback trail. But this was derailed by a terrible economy and Jones hit $2.50 in November and again in March. Since then the company has rallied strongly: it is a 5-bagger since the March low and has doubled since May.

Jones has recently put up some good numbers and the future certainly seems brighter. But the stock price has gotten ahead of itself for now. Using the most optimistic earnings estimates, the company currently trades at 15 times 2010 earnings, leaving little room for error. I know that Jim has been bullish on Jones lately. While I made money here, I missed a lot of the run-up. Those darn trailing stops again.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider A.C. Moore and Tuesday Morning to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Buzz up!