Apparel retailing is a highly rated industry group with a slew
of strong players.
Nine stocks within the group have a Composite Rating of 95 or
better. As of Friday's IBD,Gap (
) had the best Relative Price Strength Rating, at 97. The stock's
chart action also is inviting.
San Francisco-based Gap owns or franchises stores under the
Old Navy, Banana Republic and Gap names. Company-operated stores
are in the U.S., Canada, the U.K., France, Italy, Ireland, Japan
and China. There are franchise agreements in other countries.
Gap has been trading tightly in recent weeks. A new buy point
could emerge if Gap can complete a flat base it is working
The stock broke out from a cup-without-handle pattern July 19,
but disciplined investors would've ignored it. Volume was only 2%
above average on the breakout. A breakout needs a volume increase
of at least 40% above average to suggest big money is at
A proper entry was established when the stock gapped up almost
13% in more than triple volume on Aug. 2. A gap-up gain is one of
the few instances when an investor can buy a stock more than 5%
beyond the ideal buy point.
A new base and breakout could offer an opportunity to add
shares, or open an initial position. However, a new base would be
stage three, which is less likely to work than a first- or
Some quality funds have been buying shares. Fidelity
Contrafund and Vinik Asset Management added shares in the second
quarter. Dreyfus Opportunistic Midcap Value Fund opened a new
position. Overall, funds increased their stake in Gap by 11% in
the first six months of 2012.
The Street expects Gap's earnings to grow 35% this year, the
best performance since 2004. Revenue is expected to grow 6.5%,
also the highest since '04.
In the past two quarters, EPS rose 15% and 40% as sales
advanced 6% in each quarter.
The three- and five-year earnings stability factor is 9 and
10. The scale runs from 0 (calm) to 99 (erratic).
The company pays a quarterly dividend of 12.5 cents a share.
The annualized yield is 1.4%.