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Does Limited Brands Have Unlimited Potential?


Company had solid earnings to add to a string of better-than-expected quarters.

The weather forecasters are saying we may get up to 13 inches of snow, so I'm thinking I should make an appointment with my chiropractor right now...

Asian stocks fell overnight. The Hang Seng and the Nikkei were off 0.33% and 0.95%, respectively. European stocks, however, were in positive territory early this morning. And here in the US, we're currently trading lower.

Here's what I'm focused on this fine Thursday morning (besides the rapidly approaching weekend):

Limited Brands
The chain famous for its Bath & Body Works and Victoria's Secret brands was out with its fourth-quarter numbers.

It earned an adjusted $1.01 a share in the quarter, which was better than the $0.98 the Street was looking for.

Some quick thoughts:

1. It was indeed a solid quarter, and I think the string of better-than-expected quarters it's put together is bound to draw some ogles from the sell-side and the general investment community.

2. It's flirting with its 52-week high, and if it can punch through and make a new one, I think it could head into the mid-$20s.

3. But overall, I feel the shares are approaching fair value here, so I won't be hopping aboard. Sorry, LTD bulls.

I don't want to pile on here, but the video-rental chain didn't turn in a terrific fourth quarter. It's easy to see why Netflix (NFLX) -- although not cheap at 26 times this year's estimate -- remains the better play between the two giants.

However I'm thinking Coinstar (CSTR) may be the best play in the video-rental bunch right now at 18.8 times this year's estimate. In two of the last three reported quarters, it took out the Street estimate. And with a lot of folks looking to save some coin these days, those video-rental boxes at the front of the supermarket are looking more attractive than ever.

KB Home
(KBH)/Lennar (LEN):
Justin Sharon points out in his article this fine morning that Ticonderoga slapped a Buy rating on the big-name homebuilders.

As I've said before in this column, I'm more optimistic than I was a year ago on the overall homebuilding space because of improved economic conditions in the US. But things aren't so terrific in the new-home-sales space that I'm eager to belly up in earnest. With rising interest rates on the horizon, stiff competition, and consumer sentiment not exactly booming, I think the near-term outlook will remain sketchy, so I'll remain on the sidelines waiting for what I hope will be a pullback. I think we'll get one given the weakness in the overall market.

Nike (NKE):
Justin Sharon also points out in Upgrades & Downgrades: Nike Gets a Jump Start that Nike was added to the Goldman Conviction Buy list.

I'm warming up to the company in a big way. Not only has it survived the whole Tiger Woods incident, but it's been kicking out some nice earnings too, despite some unfavorable market conditions. Its addition to "the list" should be a positive for the stock. Although, again, given today's market, I'd rather wait for some of the dust to settle before bellying up. I do think the shares could have substantial upside over the next several years.

Have a great day!
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No positions in stocks mentioned.

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