INVESTING: It’s time to sift through the retail bargain bin

Anyone who knows me will agree with what I am about to say. I am not a trendy guy. Fashion escapes me. If you see me on the street, you won’t think I am caught in some kind of time warp, but I don’t rush out and buy the latest fad. That explains why, for my 13 years in this business, I have generally stayed away from retail-related stocks. Even so, I know some people make a lot of money in the area and, hey, I have a few ideas that just might work.

You may recall that I was able to call the top in Starbucks last year. I never could get why people paid $4 for a cup of coffee all those years. The last 12 months have shown what can happen when you are no longer the “in” thing, as Starbucks shares have dropped from $40 to $15.

When I last checked, Starbucks still was trying to sell coffee for $4, so there probably is more downside left. The same train of thought, however, has me thinking about a few companies that were flying as recently as a few months ago but today can’t buy a friend. All these companies relied heavily on being the latest thing, and their recent turn of fortune has been dramatically demonstrated in the stock market through a good, old-fashioned butt-kicking. Let’s dig in and see if there is any value in these former fliers.

The first company is a brand I see every day in my house, with two young boys who are both sports nuts. Under Armour has spent the last few years pounding Nike, Adidas and Reebok in the sportsapparel industry. I acknowledge that the company had innovative product design, but that stuff is easily copied.

Under Armour came public in late 2005, and in less than two years the stock went from $20 to $75. By last Christmas, if there had been nothing but Under Armour under the tree for the boys they would have been happy. But the tough stock market eventually grabbed Under Armour and dragged it down with little mercy. The stock hit $25 earlier this year.

The next company came out with a product that took off like a wildfire in a dry California park. By the middle of last summer, no self-respecting kid in America would have been caught dead roaming the beach or the pool deck without his Crocs on. The stock made an even wilder move than Under Armour’s, going from $10 in September 2006 all the way to $75 a few months ago. Now, it’s back to $10.

My younger son nagged me for weeks to get him a pair of Heelys, sneakers that have a wheel in the heel, allowing transition from walking to skating. This stock has fallen all the way from $33 to $4. Unlike the other two firms, Heelys has some patent protection. But on the downside, I don’t see a lot of kids wearing Heelys anymore.

All these stocks are down heavily from recent highs, and they are all still ongoing concerns. Little or no debt with at least slight earnings is another common trait. The question to ask today is whether any of these companies can sustain something for the long term. If you believe they can, a large profit might be waiting down the road.