David BurrowsGapGPSPARTIAL BUYAug 13, 2012

It's turning around. Just reported. Only 1% growth in same-store sales in their largest division, Old Navy, but shares caught fire, even though other divisions should weakness.

Shares had fallen before last week's report. They beat far better same-store sales and an earnings beat which surprised the street. Shares soared over 30% last Friday, hammering short-sellers.

The U.S. reopening trade People will buy business casual again and this will be a huge driver in the apparel space. So, Gap or even Macy's fits the bill. However, to play the US reopening, buy energy stocks.

Part of the "lag trade" of brick-and-mortar mall retailers that sold off this summer, but are coming back with room to run. Their Athleta line competes with Lululemon. People are buying comfortable clothing, now that they work from home (as opposed to business wear). In August's report, Athleta sales were up 19% while Old Navy was up 24%. Brick and mortar took a hit in half, but digital sales which nearly doubled. Banana Republic was the weakest segment though. Store closures are good for the bottom line (bad for workers). The Gap is hiring (not firing) 50,000 seasonal people to shore up its holiday digital sales. Gap trades at a 18x PE, reasonable.

The problem with this company and all these clothing stores is that it is very difficult to compete. Space is expensive. The ones that do well are the ones that go online. They are fighting a very difficult secular trend that is happening in the industry.

He doesn't see the Gap different from other garment retailers; it's not special. He owns Lululemon instead, who have enjoyed strong growth. Go for growth. Gap is a laggard. TJX is interesting.

This is a cheap retail stock. Has a pretty good franchise, but like a lot of brick-and-mortar retail, their numbers have stagnated. This is probably one of the longer-term survivors, but the general sector still seems to be under pressure.