3 Solid Companies I Learned About From The Ladies

 |  Includes: ABT, AEO, ANF, COH, JNJ, TJX
by: Pey Shadzi

If you're anything like me, I'm sure you have some sort of horror story about when your girlfriend or significant other made plans to visit the mall and returned home with enough purchases to keep the United States economy moving soundly along for another few weeks. From the sheer amount of empty retailer bags you find when you open the cabinet under our sink, you might think we're planning on opening a clothing store in the near future.

At our apartment in San Diego, our conversations generally go a little something like this:

Alison: Hun, I'm heading out to the mall. See you in a few hours.

Pey: Okay, see you. Oh and by the way, I hid all your credit cards. Have fun!

Okay, so there may be a hint of exaggeration there, but you get the picture. Oddly enough though, despite pulling my hair out after a particularly economy-stimulating visit to the mall, I can't help but sneak a glance at all the retailers and think "Hmm... I wonder if they're all public companies..." As it turns out, many of these name-brand retailers trade on the indices and, although I hate to admit it, I've learned much of what I know about investing from my incredibly fashionable girlfriend.

The great investment guru, Peter Lynch, who managed the wildly successful Fidelity Magellan Fund from 1977 to 1990, attributed much of his investing success to viewing what popular trends and ideas his wife would discover. "She almost got a black belt in shopping," he once admitted. Lynch's success with companies such as Hanes and their growth story due to a popular product, L'Eggs, goes to show the importance of keeping a close eye on what your significant other is purchasing.

Here are three investing principles I recently learned from my girlfriend:

1. Good investments are often right under your nose. Sure, The Wall Street Journal is an excellent place to research companies and learn about the overall sentiment on Wall Street, but oddly enough for me opening our cupboard door and taking a peek at the empty shopping bags next to our garbage can has ironically produced superior returns.

2. It's imperative to watch and monitor these investments vigilantly. Okay so that favorite brand your kids may have worn last year may have been the "in" brand, but retail stocks can often times be as temperamental as a teenager. It's important to watch these stocks very closely. Chances are American Eagle will be much more volatile than, say, Abbott Laboratories (NYSE:ABT) or Johnson & Johnson (NYSE:JNJ) since American Eagle's target demographic changes their opinion faster than a model behind the scenes at a fashion show. Stay vigilant in your research and remember that retail stocks require much more frequent monitoring.

3. It's really just all the same stuff. Let's face it, in the world of retail, individuals are always looking for the next hottest thing. When you really analyze it, however, you realize that all retailers are essentially selling the same product in a very slightly different way. Sure, a Coach (NYSE:COH) handbag may be more prestigious than a purse from Ross Stores (ROSS), and you may think Abercrombie's sweaters fit better than American Eagle's but buyers are fickle and styles, preferences and the amount of cash in our wallets is subject to change.

Here are three companies my girlfriend can't seem to spend enough of my money at:

1. American Eagle Outfitters (NYSE:AEO) is an apparel and accessories retailer who markets to the 15- to 21-year old retail market. AEO operates under American Eagle, aerie by American Eagle and 77kids by american eagle brands with roughly 1,000 locations in 76 countries. With over $3 billion in annual sales, nearly $500 million in cash, no debt and a forward P/E just over 12, AEO requires further due diligence. Better yet, AEO's dividend of 3.3% with a moderate payout ratio of 46% is evidence to shareholders that they're here to stay.

2. Abercrombie & Fitch Company (NYSE:ANF), though perhaps less of a value play than AEO, deserves a much needed look. Operating as a retailer of casual apparel for men, women and kids, ANF sells knit and woven shirts, graphic t-shirts, fleece, jeans, personal care products and even magazines. ANF operates under the Abercrombie & Fitch, abercrombie kids, Gilly Hicks and Hollister brands at nearly 1,100 locations. Almost all of the locations are in the United States though the company is focusing on international expansion as well. With roughly $4 billion in revenue, nearly $500 million cash on hand and only $26 million in debt, ANF is in a very similar financial situation as AEO; however ANF's 1.6% dividend and lower payout ratio of 31% stick out when glancing at the numbers. After falling from a July 21 52-week high of $78.25, the share price appears to have stabilized in the mid-$40s. With a PEG ratio below 1.0, it could be argued that ANF is trading at a much more reasonable valuation than has been seen in some time.

3. T.J. Maxx, a subsidiary of The TJX Companies (NYSE:TJX), operates as a discount, off-price home and fashion retailer both in the United States and abroad. TJX focuses on home basics, accent furniture, wall decorations, jewelry and gifts, seasonal merchandise and more at its locations. It operates under Marshalls, HomeGoods, Winners, HomeSense and T.J Maxx and has just under 1,000 store locations in the United States, Europe and Canada. Having had a run of 41% over the last 12 months -- as compared to the Dow's 7% return -- it's safe to say the stock is easily outperforming the market. With revenues of $23 billion, a forward P/E of about 15 and a PEG ratio of 1.5, many investors may agree with the idea that the stock is overvalued; though to be honest I've been saying this for a few years and the stock proves me wrong each and every time. TJX rewards investors with a 1.1% dividend and with a payout ratio of 26% so I wouldn't be surprised to see dividend hikes in the not-so-distant future.

In the world of shopping and retail, it may prove beneficial for investors to put down The Wall Street Journal and begin listening to their wives and significant others from time to time. Now if you'll please excuse me, my girlfriend just returned home from the mall and I have some detective work to do.

Disclosure: I am long AEO, ABT, JNJ.