Pricing of GE and Liz Claiborne Stocks: Insaaane!

Anyone who lived in the NYC area in the 1908s probably remembers the electronics retailer Crazy Eddie and its truly unique ad campaign. The heart of the marketing effort was an impassioned TV pitch man named Jerry Carroll. In the TV ads, Jerry, dressed in his cheesy turtle neck and sports jacket, would begin ranting about how low Crazy Eddie's prices were; he's wave his arms; he'd shout and flail about, ending with the famous tag line, "Crazy Eddie: his prices are insaaane!"

I feel like the market has become Crazy Eddie. There are so many stocks now which look attractive to me, it's beginning to a challenge to sort them all out, much less decide which of the many bargains I should buy.

While I figure this out, I wanted to share two ideas with my readers:

General Electric (GE). I would be the last person in the world to claim any value-added analysis to this beast, but the stock did pop out of one of my value screens recently and it seems to me that the $38-39 level is an attractive entry level. I am not sure GE has subprime exposure and that is something I need to look into further. But other than that issue, it seems that the company is making solid gains in most of its businesses.

I heard the fellow in charge of aircraft engines today speak about how great his business is. If nothing materially changes for the company and the stock simply trades back to the average valuation of the last three years, I think the stock could be around $47 over the next 12 months. That's over 20% which would be great for this kind of big, stable stock. FYI.

Liz Clairborne (LIZ). This stock is down over 40% from its 52-week high as the company undergoes a major overhaul of its brands. The CEO is committed to simplify and streamline the company's product offerings focusing on just four key brands: Juicy Couture, Lucky Brand, Kate Spade and Mixx. I admit I know little about the fashion business and could not tell a Kate Spade from a garden hoe, but the stock looks oversold, unloved and probably underowned at this point.

I like the fact that the CEO is taking to the Street about his plans and giving frequent updates. Whether he can successfully pull off this restructuring is anyone's guess, but I think the stock reflects very little of this potential. Without any significant change, I think the stock could creep back up to the $32-33 range which represents close to 20% return. Successful implementation of the CEO's plan could obviously lead to a higher valuation.

Disclosure: I do not own either of these stock right now.

Comments

[Eujinc]

This company has lost its direction. Although focusing on the 4 key brands, Juicy Couture, Kate Spade, Lucky Brand and Mixx, I have had several reports from friends in the fashion business indicating that the products from one of their diamond brands, Juicy Couture are indeed falling apart. Quality control issues are at stake. To retain customer loyalty and credibility, it all begins with the product. If the product is falling apart, there will be returns and thus a loss of credibility among loyal customers. Sounds to me that they did not do a good job in research with their vendor partnerships in China.

The CEO is also too ambitious with his plans for expansion of specialty stores for these remaining 4 brands in a gloomy climate of retail. He may be shooting himself in the foot by expanding too quickly in a risky retail market already injured by the effects of the real estate crisis.

In addition, a large chunk of their troubled brands will not fetch a good price in a risky retail climate today. Who would want to buy these brands knowing a tough challenge in retail today? I smell great bargains on the troubled brands for the desperate Liz.

I would prefer to hear the CEO's plans for restructuring in management issues including quality control issues for their key brands. It all begins with the product. If your product is falling apart, why are you focusing on expansion in an unforeseen risky retail market instead of focusing on the quality of your products and management issues.

This company does not reward its employees and there is little room for climbing the corporate ladder within Liz. A hint for the CEO, follow the model of Nike. I forecast the stock to be $15 or less by the 1st quarter of 2008.