It's Not Too Late to Sell This Stock

About a month ago, I identified Abercrombie & Fitch (NYS: ANF) as a great stock to sell in 2012. Investors who neglected to sell have probably already experienced some regrets.

Abercrombie shares plunged last week after the company guided the current quarter below analysts' expectations. Even worse, the company's holidays were anything but bright. Although the retailer's net sales increased by 16%, its same-store sales were flat. The retailer choked in a "highly promotional environment" here in the U.S. market.

Not only does Abercrombie need to get down with the markdowns to move inventory, it's also been grappling with skyrocketing cotton prices. This is not a good combination for this retailer; it's always aimed to be a high-end, "aspirational" teen brand, after all, and markdowns run counter to that brand's superiority complex.

Meanwhile, Abercrombie has exhibited ample evidence that its long-term strategy isn't exactly bulletproof, even if it occasionally grabs headlines. Last fall, Abercrombie's European weakness gave yet another reason for investors to think twice about holding the stock in the current economy.

Abercrombie isn't alone in the realm of retailers that have started the new year wrong. Wet Seal (NAS: WTSLA) reported an astounding 13% drop in January same-store sales. One of my old favorites, Aeropostale (NYS: ARO) , has hit the skids lately, with weak recent sales numbers. Although its shares look darn cheap, Aeropostale desperately needs to turn its ship aright, and now.

It's not too late to sell weak retail stocks like Abercrombie, and certainly think twice before buying them. The good news is that there are high-performing, more-reasonably-priced substitutes in the retail space. Take Buckle (NYS: BKE) , which reported a perfectly solid quarter last time around, with sales increasing by 12% and same-store sales surging by 9%. It's continuing to excel, too; Buckle's January same-store sales jumped an impressive 7.4%.

Limited (NYS: LTD) , which owns Victoria's Secret and Bath & Body Works, also clocked a big win in January, with its post-holiday monthly same-store sales surging by 9%. (I just removed my "underperform" CAPScall on Limited, given its strong stand in the current environment. It no longer looks particularly overvalued, either. You can see my overall CAPS record here.)

Buckle is currently trading at 14 times forward earnings, and boasts a PEG ratio of 1.24. Limited's forward P/E is 15, and its PEG ratio is 1.29. Although one could certainly argue Abercrombie's forward P/E of 12 and PEG ratio of 0.79 look the most undervalued of this particular trio, remember that Abercrombie's 2012 performance is in question right now.

It's not too late to gear portfolios to juice up better returns in 2012. And to achieve that end, there are far better investments than Abercrombie.

If you're searching for a retail stock idea from far beyond the American mall, Motley Fool analysts have discovered one for you: The Motley Fool's Top Stock for 2012. Click on the link to download the report, absolutely free for a limited time.

At the time thisarticle was published Alyce Lomaxdoes not own shares of any of the companies mentioned. The Motley Fool owns shares of Aeropostale and Limited Brands. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.