Brush Up Your Portfolio

 | Aug 11, 2012 | 2:30 PM EDT  | Comments
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chs

A trader friend of mine has joked that, if a company deals in a product that women can put on their bodies, its stock will be a winner.

Of course, his research is anything but scientific, and those words were spoken several months ago, when stocks such as Lululemon Athletica (LULU) and Ulta Salons (ULTA) were in rally mode. But it's one of those fun stories to ponder, such as the connection between market movements and skirt lengths, or even L.A. Lakers wins -- a gauge that some pundits track only semi-jokingly.

I thought of my friend's comment on Thursday, when I saw the 13% jump in Elizabeth Arden (RDEN). That came after better-than-expected fourth-quarter results -- and, especially, strong first-quarter guidance.

The company is a well-known, established maker of cosmetics and skin-care products. It also has lines of fragrances, including perfumes named for celebrities such as Britney Spears and Justin Bieber. This is one of those companies with a recognized name, but small market capitalization. Its current value is around $1.36 billion. The stock is also thinly traded, moving only 185,000 shares per day on average. 

On Friday, the stock was building on Thursday's gains, showing an advance of about 3.2% to $45.42. That means it's currently extended from any reasonable buy point. I don't typically like to chase gap-ups or big moves such as this, preferring instead to wait for a retreat to a short-term moving average.

To digress from clothing and cosmetics for a moment, an outstanding case in point right now is Lumber Liquidators (LL). That stock bolted 29% two weeks ago, and is currently consolidating in a very bullish manner along its five-day line. Watch for some type of similar action to Elizabeth Arden for a potential buy point.

The fundamental case for Elizabeth Arden is only so-so. Analysts foresee a slight earnings decline in fiscal 2013, and revenue growth has been in the low single digits. That level of sales growth is not atypical for a long-established brand, but it's still nothing to get excited about.

On a more positive note, Wall Street sees profit growing 19% in fiscal 2014 to $2.37 per share. That indicates a solid level of confidence in the company's business, and it could draw more institutional owners.

From the women's apparel category, Chico's Fas (CHS) has been showing renewed signs of life. Several years ago, it was a growth leader, with earnings growth and price action that were dressed to kill. More recently it's been somewhat in the doldrums, and is still in the midst of a price consolidation that began in July of 2011. But there are reasons to be more optimistic about its prospects. Though the stock was retreating on Friday, along with the major indices, the stock continues to hover in the vicinity of its all-time high of $16.19, reached on Tuesday.

The company is due to report its second quarter on Aug. 22 before the open. Analysts expect earnings of $0.30 a share on sales of $641.25 million. Those would be gains on the top and bottom lines. The company beat earnings views in the past two quarters, but missed in the one prior to that.

As of right now, I would not consider Chico's a buy candidate. It's a bit premature, as the stock was slipping beneath its five-day exponential moving average. If it finds support at its 15-day line, or regains the five-day EMA, it could offer a buy point ahead of the earnings.

However, if you do take a position in this stock prior to Aug. 22, carefully evaluate whether you'll want to hold through the report. One strategy would be to pare your holding, or to only take a small position. That way, even if the report is disappointing and the stock is punished, you won't have much money at risk.

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