My Top “Made in America” Stock Pick Selling Under a Dollar
The current stock market risk continues to be high for technology and small-cap stocks. Yet with the selling, we are beginning to see some decent opportunities coming to the surface.
The small-cap Russell 2000 is down just over seven percent after previously being down by more than 10% in the stock market. And while we are seeing heated stock market selling in higher-beta technology small-cap stocks, there are also opportunities emerging. Think of it as a current sale in the stock market that could inevitably see bigger discounts to buy equities in the stock market on the horizon.
But a small retail stock that I feel could reward speculators if it can strengthen its balance sheet is American Apparel, Inc. (NYSE/APP), which is based out of Los Angeles. What makes the company interesting is that the maker of fashion apparel for women, men, children, and babies manufactures its products within the United States borders, instead of places like China and Asia, which offer cheaper labor.
You could say that American Apparel truly is a “made in America” company producing its fashionable garments from an 800,000-square-foot facility in downtown Los Angeles. There are also other facilities in California.
American Apparel is a vertically integrated manufacturer, distributor, and retailer. The retail stores are located in major U.S. cities, along with outlets in Latin America, Europe, and Asia.
Considering what many of the major retailers and apparel makers in the stock market are doing with their manufacturing in cheap labor markets, American Apparel is quite astonishing—but the problem that arises is the lack of profits.
The financial risk has been hurting the stock. American Apparel was facing a possible delisting by the New York Stock Exchange (NYSE) after a cash crunch with a $13.4-million interest payment due to be paid April 15.
The situation was resolved for the moment after the company received cash from a stock issue to Switzerland-based Five T Capital. This is only a temporary, bandage solution; American Apparel will need to find financing, as the company has a mere $9.0 million in cash, but $268 million in debt on its balance sheet. Clearly, the balance sheet will need to be resolved.
In my view, American Apparel is a good example of a higher-risk buying opportunity in the stock market; this type of stock could return big profits if it is able to deliver steady results and a resolved balance sheet.
American Apparel reported sequential annual revenue growth from $201.46 million in 2006 to $558.78 million in 2010, and from $547.34 million in 2011 to $633.94 million in 2013. The revenue growth is estimated to continue at 2.4% in 2014 and 3.6% in 2015, according to Thomson Financial.
While earning profits is more difficult for this company due to its decision to produce domestically rather than using offshore labor, the company appears set to report profits after 2015 if everything pans out.
Trading at a lowly $0.68 in the stock market, American Apparel is well down from its 52-week high of $2.17. A stock like this is advised only for speculative high-risk trading accounts.
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