Meryl Witmer Likes Shoemaker Deckers Outdoor (DECK)

In the annual Barron's Roundtable of top investment pros, Meryl Witmer of New York's Eagle Capital Management names a footware company that looks particularly attractive to her at this time -- it's worth noting that all of Witmer's stock picks in last year's Roundtable finished in the black:

Deckers Outdoor (DECK) sells for $30 a share. It is a shoe company whose principal brands are UGG, Teva and Simple. UGG makes terrific boots and slippers, typically of shearling. Deckers was one of the most heavily shorted stocks last year because many believed UGG was a fad that would burn out. The naysayers have been proven wrong this season, with inventory at most channels all but sold out.

Consumers love UGG's spring line. I brought a few pairs, just to show you. [Holds up a shearling moccasin and sandal and passes them around.] These are already beginning to sell out on Websites. The brand could grow from $150 million-plus in current sales to about $400 million within four years. UGG is an "affordable luxury" brand, along the lines of Coach (COH).

Barron's: Is Teva a hot seller, too?

Witmer: It is a well-known sandal brand that has lacked innovation and suffered from competitors taking market share. Deckers' new CEO, Angel Martinez, was one of the masterminds of Teva's best competitor, Keen. Now he's on Deckers' team. We see him rejuvenating Teva and growing sales to at least $100 million within a couple of years from $80 million now. Deckers' third brand, Simple, offers shoes with the comfort of sneakers without the flashy labels. It has generated a following among celebrities, typically a precursor to a brand taking off. Simple sales are only $10 million now, but some think it could be Deckers' biggest brand.

Martinez began his career at Reebok and built Rockport into a very large brand. He is one of the best, most driven and product-savvy executives in the footwear industry. Deckers could have $500 million to $700 million of sales within four years. Assuming a 16% margin, it could have earnings of $4 to $5.50 a share. Using a P/E of 14, we see the stock rising to $56-$77 a share in a few years. Near-term results should be in the $2 to $2.50 range. You have to be a long-term shareholder.

DECK 1-yr chart: