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Three Retailers to Short


Another disappointing holiday season approaches. Can these stocks survive it?

Which ones would this professor consider shorting?

(ANF) is a short, she says, because the company has lost its brand appeal. Its overpriced merchandise can't compete with rivals that offer essentially the same product, like American Eagle (AEO) and Aeropostale (ARO), she argues.

"One look at the company's margin erosion after the last several quarters tells the whole story," she says.

Next up: Talbots (TLB).

"Its balance sheet is just bogged down by debt and, in recent years, it has missed huge fashion trends completely, tarnishing the brand," our pro says. "The CEO is making a lot of changes that could revive the company, but the market has simply priced in way too much optimism -- the stock is up nearly 300% this year so far."

Finally, investors can consider shorting Sears (SHLD).

"Everyone thinks this is a value play," our guru notes. "They thought it at $100 and they thought it when it nearly hit $200 over the last few years. The 'real estate' story everyone gives to this company is ridiculous. Sears is a retailer -- and a really, really, crappy one."

The professor concludes, "The stock has risen over 80% this year and sells at 10x EV/EBITDA -- not exactly a value price for a company that couldn't even generate positive sales before the recession."

It's important to understand that not every pro thinks shorting the retailers here is a smart, money-making play, however.

We caught up briefly with Jeff Macke, for instance, who thinks Rosenberg is dead wrong to suggest this strategy.

Speaking of the retailers, Macke told us: "Companies like Walmart (WMT), Target (TGT), and Gap (GPS) are executing too well. I don't want to short them. There are better places to take that bet, and there are plenty of ways to take a shot at the consumer."

The trader said he would prefer to short other sectors right now, chiefly gunning for casinos, cruise lines, and media companies.

"The New York Times (NYT) is going out of business," Macke says. "That is a better short."

It's equally critical to remember that shorting a stock sounds cool, and certainly makes you look sophisticated at the local bar. Parrot back some of the chatter you've overheard recently from Jim Chanos, and it's a good bet that 90% of the folks within earshot will be left dazed and confused.

But, say the professionals, remember that it's a tough way to make money.

"They have made it incredibly difficult," Macke says. "And everyone is on these bets."

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