Two Ways to Play Warm Weather Wardrobe Splurge

Written by GSCR Staff   
Friday, 04 April 2014 08:53

The brutal winter looks like it is finally over. Spring fever is about to hit a majority of the nation which is just itching to get outside and play. Part of this fever will be the macroeconomic effect of an increase in consumer discretionary spending on spring and summer ‘stuff’. As we have stated previously, we see the apparel sector as a way to play this phenomenon over the next several months.

 

A stock that looks dressed for success is L Brands (NYSE – LB - $58.93), formerly Limited Brands. The mega retailer and clothier offers two household brands, Victoria’s Secret and Bath & Body Works which provides everything from loungewear, bras, panties, sleepwear, swimwear, athletic attire, fragrances, shower gels and lotions, aromatherapy, soaps and sanitizers, home fragrances, and personal care accessories. This diversity offers a smart way to get in the spring shopping spree. LB is very bullish on the technical analysis side and has a forward 12-month P/E under 16 which is considerably below the industry average of 19. Look for a target price of $70 or play some options if the price is out of range. There are some attractive prices in the August contracts.

 

In the small cap world, our May 2013 30-30 pick Pacific Sunwear of California, Inc. (NASDAQ – PSUN - $3.08) seems poised to make a run.   Hang 10 dude. The Company offers a unique ‘California’ approach to casual apparel, accessories, and footwear designed for teens and young adults. However, do not let the laid back attitude fool you, Pacific Sunwear has expanded to several proprietary brands including Pacific Sunwear and PacSun, and operates in 617 stores in all 50 states and Puerto Rico.

 

PSUN is up a modest 6% since our coverage a little less than a year ago, but we believe that the $4.50 range is an achievable target this year. On the micro level, the technical analysis Daily Moving average metric is very bullish for the signal for the next two months and the Company is expected to grow over 3% on the top line in FY14. Additionally, the Company reported positive same store sale growth for the eighth consecutive quarter when it reported quarterly financial results for FY13Q4. Finally, Pacific Sunwear has implemented marketing and operational improvements that could benefit operational and profit margin this year.

 

Look for a big bounce in both stocks if Friday’s monthly jobs numbers are good or even marginal.

 

Have a great weekend!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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