Companies Are Showing Government How It's Done

It was reported this week by Bloomberg that the government has either spent or allocated $12.8 trillion in an attempt to shore up the financial system. That works out to $42,105 for every man, woman and child alive in the U.S.

Though raised on inexpensive jeans from the Gap (GPS) and Zayre, I finally joined the ranks of the fashion-conscious and bought fancy "designer" jeans, doing my small part to help the economy…and to try and impress the girls.

For around $200, I bought a pair of Joe’s Jeans, a brand popular with stars like Will Smith, Tom Cruise and Kate Beckinsale. Upon bringing them home, I followed the store’s strict instructions, breaking them in before turning them inside out, washing in cold water and having them professionally shortened. The cost seems extravagant, but I have to admit that my butt has never looked better.

Turns out the jeans are actually made by a publicly traded company, a tiny Nasdaq microcap known as Joe’s Jeans (JOEZ), which trades for a mere 32 cents and sports a market cap of just $20 million.

Say It Ain’t So, Joe

Joe’s Jeans – 1 year

In an age of uncertainty, Joe’s is a true lottery ticket – a microcap stock in danger of being delisted operating in a very weak sector.

That alone scares me. As a young investor, I was taught that penny stocks are penny stocks for a reason, and that a low share price is negative sign. Most of the time that’s true. As was reported in Barron’s this weekend, of the 176 stocks that traded below $1 anytime during 2008, the average drop was a stunning 84%.

Then again, there’s the whole Peter Lynch approach of “invest in what you know,” which tempts me to jump into Joe’s. The jeans are sharp. Having witnessed many eras of denim, from the acid-washed look of the 1980s to black skinny style of the 1990s, the modern incarnation is slimming, classic, versatile and luxuriously soft. We’ve come a long way since Bugle Boys.

Moreover, consumer confidence numbers, as we pointed out a few months back are still at or near all-time-lows, even as many consumer-related stocks rally sharply. Names like Ruby Tuesday (RT), Whole Foods Market (WMFI), Dress Barn (DBRN) and Charlotte Russe Holding (CHIC) have enjoyed substantial bounces.

Given the fact stocks tend to anticipate the news, by the time confidence numbers actually improve, these stocks, and perhaps even Joe’s Jeans, could build on hefty gains. That being said, I’d consider this a low-probability, high-risk gamble. Fashionable, but not really my style.