Back to School Special to Counter Beat Down

In Monday’s Guide we alluded to our call from last week that we believe that markets in for a correction.

We mentioned that winners out there are probably stocks that survived the sell-off last week and look to have some potential for a continued short term pop.

 Cherokee, Inc. (NASDAQ – CHKE - $17.41) is a likely candidate that also combines the seasonal back to school play. The Company markets, manages, and licenses fashion and lifestyle brands that it owns or represents for apparel, footwear, home, and accessories worldwide with brands that include Cherokee, Sideout, Liz Lange, Sideout Sport, Carole Little, Saint Tropez-West, Chorus Line, All That Jazz, Uniform, Completely Me by Liz Lange, and Tony Hawk among others. As of February 1, 2014, Cherokee had 27 continuing license or brand representation agreements covering domestic and international markets.

During last week’s market cliff dive CHKE actually rose nearly 1%, and Monday the stock jumped over 2%, hitting a new 52-week high. Clearly, the Company is executing at a very high level. Over the last two months Cherokee has introduced a new high-end swim wear line, ale by Alessandra, and has entered new international marketing alliances in Europe, Australia, New Zealand, Canada, and China. Target (NYSE – TGT) is a major seller of the Company’s products, with an emphasis on back to school clothing such as those used as part of uniforms, so the stock could also be a cheap way to play TGT and its back to school sales efforts. An 8% CAGR in top line sales is estimated by the consensus of street analysts, another reason to like the CHKE.

We think the survival from last week combined with the seasonal play make CHKE a great opportunity for a short term trade. A dividend of $0.05 is payable to shareholders of record as of September 1, and the next quarterly results are due to be released in mid-September. Look for the stock to approach the $20 sometime shortly thereafter.

Have a great day!

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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