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3 Smartest Ways to Own Retail Stocks

These three subsectors are the best retail plays in 2014

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Apparel Retail

retail-stocks-GPSWhen it comes to apparel retail stocks in the S&P 500, investors have stocks to choose from. Although tempted by Nordstrom (JWN) because of its impending expansion into Canada, I view Gap (GPS) as the best pick — its stock has done okay in 2013, but is still the cheapest of the group in terms of valuation. CEO Glenn Murphy has proven he knows how to operate in retail.

November sales are in, and although they were nothing to write home about — overall comps were up 2% year-over-year, with Old Navy generating a 3% same-store sales increase compared to 1% the year before — they were better than many of the retailers who operate primarily in malls. Gap has seen a lot of ups and downs in the past decade so this isn’t going to faze them. Besides, analysts were only expecting an increase of 0.7%, so really it performed better than expected.

Several opportunities exist for GPS as it enters 2014, the biggest being in Asia with Gap China and Old Navy Japan. Beyond that, opening more Athleta stores and taking the fight to Lululemon (LULU) are the big priorities, especially since LULU appears to have fallen off the growth wagon.

Since Glenn Murphy took over as CEO in July 2007, GPS stock is up 155% compared to 38% for the SPDR S&P 500 (SPY). Unlike Paul Pressler, Murphy has been the tonic GAP needed to get its ship righted. Nonetheless, investors aren’t giving it enough credit. Its enterprise value is just 6.8 times EBITDA, compared to 8 times EBITDA for its index peers.

With some good results (they don’t even have to be great) the next 2-3 quarters, I could see a $50 stock price by the end of 2014. GPS stock is a value play all the way.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

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