TI(RED): Gap stock lags in the midst of “comeback”

I had an internship with a stock broker when I was in undergrad and he told me that you can’t go wrong when you buy companies that you believe in.

Back then, I believed in the Gap and once I found out that they owned Old Navy I was sold on the stock. It was the fall of 2001 when I jumped in, and since then the stock has done virtually nothing.

The Gap has been in the midst of a “turnaround” for years…shuffling managers, cost cutting, etc. and recent results suggest that the changes are starting to make a positive difference on the company’s bottom line.

Net income was up for the most recent quarter and this is the third consecutive, positive quarterly surprise. So if the surprises are good, why is the stock down this year?

My guess is that even though the Gap’s bottom line is improving, it is primarily due to cost reduction and inventory control NOT sales or market share increases. The negative market sentiment regarding retailers in the coming months probably doesn’t help.

Cost reductions are cool but unless the Gap finds a way to rejuvenate sales I don’t think the stock will breakout of its comfort zone.

As for the broker’s advice…I think what he really meant was that I would be more comfortable losing money on a stock I picked as opposed to one he picked for me.