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Friday February 19, 2010
Aeropostale: A 'split' buy
By Neal Macneale, editor 2-for-1
This month, we are shifting from our normal strategy to buy a stock that has split 3-for-2: Aeropostale (NYSE: AEO), a clothing retailer. 
Despite my hopes to the contrary, January came and went with only a single 2 for 1 split announcement. That was Chinese electrical component manufacturer Jinpan International Limited (NYSE: JST). I may be missing the boat here, but I’m just not interested in the Chinese market, due to the extreme volatility of its stocks and questions regarding transparency and corporate governance. I’m recommending avoiding this market. However, trying to think outside the box, I am going to recommend, and buy for the 2 for 1 portfolio, a stock that wouldn’t ordinarily be up for consideration. Aeropostale announced a 3 for 2 split on 2/3/10. Even though ARO was not a January split, and despite the fact it’s a 3 for 2 split instead of 2 for 1, I like many aspects of this stock. It has a reasonable PE even though its earnings have been growing at almost 30% per year for the last five years. It has no debt and its Beta, or measure of volatility, is just about equal to that of the overall market. Aeropostale is a children’s clothing retailer with proprietary brands sold only through its 885 stores and its web site. The company seems to have found a formula that has worked in good times and bad, and its split announcement would indicate its Board feels this will continue for the foreseeable future. The fact that a 3 for 2 split is being purchased for the model portfolio is a big deal. Since its inception in 1996, the 2 for 1 portfolio has recommended and purchased 187 2 for 1 splits. ARO will be the first 3 for 2 split. We deviate from the norm because these are not normal times. With most Boards of Directors just trying to get their companies through the recession, to have a Board even thinking about a stock split would be a positive signal to me. Going against the tide and announcing even a 3 for 2 split tells me ARO’s directors clearly see good times ahead. Learn more about this financial newsletter at Neil Macneale’s 2-for-1 Stock Split Newsletter. |
News Flash
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Our model stock portfolio is developed on a monthly basis by selecting one stock each month from among all the stocks in the prior month that have announced 2-for-1 stock split.