4-Star Stocks Poised to Pop: Cato

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, women's apparel retailer Cato (NYS: CATO) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Cato's business and see what CAPS investors are saying about the stock right now.

Cato facts

Headquarters (Founded)Charlotte, N.C. (1946)
Market Cap$706 million
IndustryApparel retail
Trailing-12-Month Revenue$935 million
ManagementChairman/CEO John Derham Cato (since 1999)
CFO John Howe (since 2008)
Return on Equity (Average, Past 3 Years)17.5%
Cash/Debt$242 million / $0
Dividend Yield3.8%

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 84% of the 92 members who have rated Cato believe the stock will outperform the S&P 500 going forward.   

This past fall, one of those bulls, BigFatBEAR, tapped Cato as a stock worth trying on for size:

Not-hyped sector of women's clothing. I glanced through the website -- not much I'd be interested in if I were a hip chick, to be honest. I think their market is more suburban soccer mom. BUT, the stock has a near-perfect balance sheet, good and increasing dividends, and slightly bouncier-than-the-market technicals. ... Not likely to be a CAPS megapick, but likely to beat the market without a ton of risk.

But before you run out and start gobbling up shares, some of Cato's peers might actually be better suited to your own individual investing profile.

Chico's FAS (NYS: CHS) , for example, has a higher expected five-year growth rate than Cato, so it might be better for less risk-averse growth-seekers. Meanwhile, Guess? (NYS: GES) has historically posted much higher returns on equity, making it a good choice for investors who want "quality." And Limited Brands' (NYS: LTD) stock has doubled over the past two years, easily outperforming Cato's, which naturally gives momentum-hunters a better option. However, when you consider that Cato sports a higher dividend yield than each of its peers mentioned above, the stock seems nicely suited for income investors looking to get into the space.

What do you think about Cato, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

Want to see how well (or not so well) the stocks in this series are performing? Follow the newTrackPoisedToCAPS account.

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Cato and Guess?, as well as writing covered calls in Guess?. The Fool owns shares of Guess? and Limited Brands. Try any of our Foolish newsletter services free for 30 daysWe Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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