Jones Apparel Group: A Retail Sector Hybrid with Promise

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The retail sector is on the mend, but the sector remains riddled with antiquated business models and chains that won't be around in five years, hence a cautious approach is advised. And one unique retail play with decent risk/return is Jones Apparel Group Inc. (JNY)

Jones Apparel is a multi-brand apparel and accessories company that operates at both the wholesale and retail levels.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%
The company has done an admirable job cutting costs, closing stores, and eliminating redundancies, while focusing on its core brands: Jones New York, Anne Klein, Nine West, Gloria Vanderbilt, and l.e.i. However, JNY still has the 'critical mass/economies of scale' in store fleet that institutional investors like.

JNY will likely increase market share amid the retail carnage, but sales with remain challenged through the second quarter of 2010. Look for a 1% to 3% increase for all of 2010. The First Call FY2009/FY2010 EPS estimates for JNY are $1.14 to $1.30.

Technically, Jones Apparel's stock chart is strong -- an uptrend. Recently, the stock dipped below the key, 50-day moving average, but view that as mostly year-end profit-taking by short-term institutional investors. JNY traded below $4 earlier in 2009. Hence, the pull-back is a buy opportunity. JNY will encounter psychological resistance at $20, but this should prove to be minor.

Stock Analysis: Jones Apparel Group is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your JNY position before February 2010. Sell/Stop Loss if you were to buy shares in this company: $8.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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