Cato Corporation (CATO) is one of the first stocks that came up on my screener. Based on a 5-year average, the stock is trading near the bottom of the range in terms of price/free-cash-flow, price/earnings, price/sales and and price/book. “Bottom of the range” means the stock is trading at one of its most attractive valuations in recent history. While 5 years of valuation data is shown, current valuations are the most attractive they have been in more than 10 years.

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The company has no debt and has steadily growing earnings. Since 2011, earnings are close to $2/ share or higher, making the current price (near $22) look quite attractive. Buying at $20, now, is similar to buying at the 2008 low (because of the company has grown since then). I also like that the price is moving into a support area near $20. The price may drop a bit below that, but it is still an attractive place to buy.

If the company maintains current profitability, look to exit near $40. If earnings continue to increase, hold on to it (dividend yield is 6.1%) and sell it when the price is trading above 18 x yearly earnings.

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Next up is Urban Outfitters (URBN). Based on a 5-year average, the stock is trading near the bottom of the range in terms of price/free-cash-flow, price/earnings, price/sales and and price/book. While 5 years of valuation data is shown, current valuations are the most attractive they have been in more than 10 years.

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The company has no debt and and steadily growing earnings. Since 2013, earnings are close to $1.70/share or higher. I like this stock between $17 and $20. Earnings have fluctuated over the years, but buying it between $17 and $20 would be a great value. The $20 region is also a support area in this stock.

If the company maintains current profitability, look to exit near $40. If earnings continue to increase, hold on to it or sell it when the price is trading above 25 x yearly earnings. Urban Outfitters isn’t as profitable as Cato (on a per share basis), yet it has a tendency to trade at a higher valuation…that is why this stock has a different exit point.

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Final Word on Investing in Beaten Down Retailers

These retailers have sold-off recently and are trading at attractive historic valuations. The trades are quite similar in Cato and Urban Outfitters. Both have an entry near $20 and exit near $40 (if earnings stay about the same over the next year or two). Cato pays a quarterly dividend, though. With a $20 entry, that dividend equates to 6.6%/year. On the flip side, Urban doesn’t pay a dividend, but tends to trade at a higher valuation so there may be a bit more upside in Urban over the longer-term…if they continue to grow earnings.