Small Retail Names With Big Potential

 | May 02, 2012 | 4:00 PM EDT
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The retail sector has continued to chug along in a leadership role, despite dire predictions about the effect of high gas prices on consumers.

There are some obvious leaders -- Ulta Salons (ULTA), Lululemon Athletica (LULU) and Select Comfort (SCSS), for example -- but on my latest scans of the retail sector, a few under-the-radar names bubbled up to the top based on combined fundamental and technical qualities.

Liquidity Services (LQDT), an online auction service allowing businesses to snag deals on surplus and salvage goods, has risen an impressive 43.55% so far in 2012. It rallied to a new high of $56.31 on Friday and then pulled back in the two subsequent sessions.

Even with the pullback, Liquidity Services was holding slightly below its 10-day line as of Tuesday's close. The company is due to report its second quarter before Thursday's opening bell, with Wall Street eyeing income of $0.37 a share on revenue of $122.64 million. Those would be significant increases over the year-ago quarter.

The company beat bottom-line views in each of the past four quarters. In addition, the pace of earnings growth increased during that time.

Currently, Liquidity Services is holding above its 10-day moving average. A buy point could occur above the prior high of $56.41, but be careful about chasing the stock if it makes a big earnings-related move. In most cases, it's best to wait for the next pullback (even a small one) to enter a position.

Liquidity Services is a fairly recent IPO, having made its debut in 2006. It's still young enough that it has a good chance of remaining among the ranks of the market's top price performers, as long as its fundamentals remain intact.

Conn's (CONN), a regional electronics and appliance retailer, is another not-so-famous name that's performing well. The stock had a brief leadership run back in 2005. This company also made its public-market debut in 2003, putting it with Liquidity Services in the category of relatively recent IPOs.

Conn's has a market cap of $543 million, and it trades about 281,000 shares a day. The stock gapped up nearly 16% in monster volume early last month after raising its quarterly profit outlook.

The company is expected to report its fourth quarter on or around May 24, with analysts anticipating earnings of $0.30 a share on sales of $197.77 million. That would be a bottom-line increase of 114%, but a top-line decrease of nearly 2%.

Conn's earnings performance has been turning around in recent quarters, following some year-over-year earnings declines in 2010 and 2011.

The stock retreated after last month's big gap up, showing some volatile trade, but has gotten solid 10-week support. The stock has a beta of 1.68, indicating a greater degree of volatility than found in the wider market.

Small, volatile stocks can be risky, and Conn's has shown erratic trade throughout its history.

A buy point could occur above $19.83, the prior high, or potentially even sooner. For example: Conn's 10-day line is currently below its 20-day. A more aggressive trader could enter a position as that situation reverses. Keep the overall market trend in mind. The current uptrend was only confirmed last week and is still fragile. Heavy-volume selling on the major indices could put the fledgling rally in jeopardy.


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