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Tickers in this Article: GPS, M, AEO, TIF, WMT, TGT, TJX, ANN
Jefferies downgraded popular retailer Gap (NYSE:GPS) from "buy" to "hold," and the stock was down in Monday's session. Regardless, the shares are a good value at current levels, and should be observed carefully.

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Gap's Form Fit
Gap is not alone. Jefferies also downgraded American Eagle Outfitters (NYSE:AEO), Ann Taylor (NYSE:ANN) and TJX Companies (NYSE:TJX). Jefferies instead seems to be placing a bet on a higher-end retailer, as it upped its rating on New York-based jewelry company Tiffany (NYSE:TIF) from hold to buy. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

However, discounters and middle of the road retailers will rule here in 2010, since many American's are still gun shy when it comes to major purchases, and it could take several years for them to go back to their previous spending habits. So, retailers like Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) should fare well.

Digging deeper, Gap has some other things in its corner that are worth putting down on paper, as well. For instance, it has beat expectations in three of the last four reported quarters, and going forward I am optimistic it can beat again. As far as earnings are concerned, the company is expected to generate $1.50 per share this year. That means it trades at just 13.7-times this year's estimate, which isn't bad, considering it is also expected to grow its EPS a healthy 10% from this year to next ($1.50-1.65).

Also, because the stock has been performing and trades pretty near its 52-week high, some institutional players might give it a look as they put cash to use in the new year. The stock could knock through its 52-week high if management offers a solid forward outlook along with its four quarter numbers. Note that it is expected to release its fourth quarter numbers in February.

The Bottom Line
Gap stock could have some upside, and its expected growth from this year to next year, and its ability to survive through some extremely trying times, are all attractive features.

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