Gap's Stock Comes Back in Fashion

So while I haven't been into a Gap (GPS) store in years, I'm confident enough in its shares to have taken a position using call options to bet on upside potential above $22.50. This seemingly forgotten growth stock, which traded as high as $50 a share back in 2000, has been lapped this decade amid expansion blunders and a lack of distinctive style.

Yet in recent weeks there's plenty of objective evidence that the sector has a bid. Wal-Mart Stores' (WMT) run has been fairly well publicized, less so the more fashion-oriented retailers such as Urban Outfitters (URBN), Aeropostale (ARO) and J. Crew Group (JCG). Whether it's the forthcoming stimulus checks or a harbinger of a stronger economy ahead, this is a move that seems to have legs.

Personally, I couldn't care less. Businesses, even failing ones like Countrywide and United Air, are privately owned. Investing in them is voluntary. If shareholders are upset with a CEO's pay, either sell the stock or, as Carl Icahn likes to do, accumulate enough shares to influence the board. Even a shareholder with a small stake can put up a proposal for a vote.

Still, it doesn't stop the AFL-CIO from posting an extensive "PayWatch 2008" section of its web site, claiming that "chief executive officers of the firms most responsible for causing the [credit] crisis collected hundreds of millions of dollars in pay last year. This highlights the need for further reform to protect companies and their investors."

Companies are owned by shareholders, not regulatory bureaucracies or union pressure groups. It's not the government's responsibility — or right — to dictate what a company pays its CEO.

Movement in lower priced stocks, perhaps because we see them as lottery tickets anyway, tends to be discounted, even when the percentage change is equally dramatic. For example, Ford Motor's (F) 90-cent drop on Friday to $7.50 a share accounted for a 10% decline, or roughly $1.6 billion in lost market cap. Monday morning's 70-cent rebound back above $8 added nearly 10%. Investors who traffic in low-priced stocks should be adept at thinking in percentages rather than absolute numbers, a task made much easier by online tools such as the Percentage Change Calculator. When a stock sinks under $10, a few nickels either way can really affect your bottom line.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.