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Abercrombie's Shares Not as Eye-Catching as Ads


There are better plays in retail.

Asian stocks ended mixed. The Hang Seng fell 0.38%, but the Nikkei was up 0.75%. Meanwhile, European stocks were lower early this morning. And here in the US, we're currently trading lower.

Here's what I'm focused on this morning:

Abercrombie & Fitch
The retailer known for its half-dressed models took a little pummeling yesterday. An analyst lopped her fourth-quarter and 2009 estimates on the stock.

My two cents:

1. While I admit its advertising sometimes catches my eye, its shares don't. I've been a bear on the company for some time now. While I appreciate the popularity of the chain and its solid name, I think there are better plays in retail.

Abercrombie trades at a puffy 33.8 times the Street estimate for this year. Put another way, I don't think it's the type of value Ben Graham would have been jumping up and down about. To boot, its share price has arguably had a respectable run, and I don't see what the next major catalyst is that could bring it up to the next level.

3. Insiders, how about trying something on?

For my last take on Abercrombie, click here.

Excluding items, the company put up a penny a share in its fourth quarter. I expect it to get its can kicked today because unfortunately, the number was just a wee bit shy of the $0.06 the Street had been looking for.

Some other thoughts:

1. I sense the optimists are thinking that its top-line number looked decent (and I would agree). To boot, longer-term demand for merchandise like cars should be pretty strong.

2. But I'm not overly excited about it. I'd rather wait to see if/how much it pulls back at this point before bellying up. Remember, next year isn't expected to be too huge on the EPS front. And what other near-term catalysts are there?

3. Under $15, however, I might revisit the idea. At this point, it's a pass.

For my last take on Alcoa, click here.

Procter & Gamble
Justin Sharon points out in his article that Bank of America/Merrill upped its rating from Neutral to Buy.

As I pointed out in an article back in September 2009, the stock isn't insanely cheap, as it trades in the ballpark of 14.5 times this year's estimate. But I like the company for the longer-term because it's pretty much a play on necessities. Part of me also believes this stock could see some upside if investors realize difficult economic times on Main Street will likely linger and there's a flight to "perceived" safety.

Dominos Pizza
Citigroup upped its rating from Hold to Buy.

Some thoughts:

1. Although the food business remains a difficult one to be in these days, Domino's has been kicking out some decent earnings and has beaten the Street four quarters straight. It's expected to show double-digit EPS growth from 2009 to 2010, which is attractive, too.

I think the shares deserve to bust through their high and would be more fairly valued in the low double-digits.

Just as an aside, when it comes to fast-food chains, I remain most interested in McDonald's (MCD) and its prospects over the next few years. I also think Starbucks (SBUX) deserves a double-take at current levels.

Have a great day!
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No positions in stocks mentioned.

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