AEOS vs. ANF

Two of the more interesting retail stocks over the past couple of years have been American Eagle (AEOS), and Abercrombie&Fitch (ANF). Although both have seen spectactular gains of over 600% in the past 5 years, they are still trading at modest P/E's - and the value seems to remain.

The reason why I find both of these stocks so attractive is that their trading multiples have declined as their brand equity increased. This paradoxical interaction of key investment factors is due to a simple fact; investors are impatients and expect, quarter after quarter, for record growth. The fact of the matter, however, is that companies trading at forward P/E's of 11 (ANF) and 13 (AEOS) don't really have any growth priced in. But they will grow - not only are their operations focused in the U.S. (room for geographical expansion), they also have the opportunity to target more demographic groups, including young adults (they're currently focused on tweens, teenagers, and university students). Both have innovative concepts and their stores trigal more emotional response from their customers than comparables like Gap and Nordstrom. Both companies should continue to grow, and will cut costs as they do so through economies of scale in production (they're fully integrated), distribution and marketing.

Here's an interesting chart that depicts the two stocks' growth against each other. As you will see, they are closely correlated, and the recent pullback of ANF is a good buying opportunity.
http://finance.yahoo.com/q/bc?t=2y&s=AEOS&l=on&z=m&q=l&c=anf
I would be shocked if ANF didn't bounce back to 70 by year end from 57. AEOS is at 29 and I expect it to finish the year in the 34-38 range.