Jo-Ann Stores (JAS): A 'crafty' buy

"Our latest "undiscovered gem" is an under-loved pick from the retail sector," says Elizabeth Harrow, pointing to arts and crafts retailer Jo-Ann Stores (NYSE: JAS).

In Schaeffer's Investment Research, she explains, "While retailers have struggled, Jo-Ann's core customer isn't sewing money into her mattress yet and investors should paying attention to this little stock."

"If you're into arts and crafts, you're probably familiar with this retail chain with -- with stores located in 47 states -- offering craft-oriented merchandise. Jo-Ann Stores. The retailer reported first-quarter sales increased 5% to $446.1 million, outpacing analysts' expectations for quarterly revenue of $434.9 million.

"In 2008 alone, JAS has rallied to a gain of more than 64%. During the same time frame, the S&P 500 is down about 3%. Despite the recent upswing in the broad market, JAS is still outpacing the S&P 500 on a relative-strength basis. During the past 40 trading days, JAS has outperformed the S&P 500 by 32%.

"The stock's recent uptrend began after JAS formed a bottom around the 9 level in mid-January. (Prior to that, the shares shed a staggering 74% from their June 2007 peak to their January 16 nadir.) JAS is now up about 133% from that multi-year low, and is trading atop support from its 10-day and 20-day moving averages.

"Additionally, the stock's longer-term 10-week and 20-week trendlines completed a bullish cross back in late March. These formerly resistant moving averages appear to have switched roles, and are now providing support for the shares.

"Analysts can kindly be described as 'less than enthusiastic' when it comes to JAS. Zacks reports that just 4 brokerage firms follow the stock, and the vast majority of this minority is firmly bearish.

"This configuration leaves JAS well-poised to benefit from fresh coverage or future upgrades. Any new initiations or positive comments from analysts could draw new buyers to the stock.

"JAS also stands to benefit from an unwinding of negative sentiment among investors. For starters, short interest represents a hefty 15% of the stock's available float. At the equity's average daily volume, it would take more than 10 trading days for all these bearish bets to be repurchased.

Option traders are also displaying a bearish bias. And open interest on JAS is relatively light. This leaves plenty of room for more investors to discover the stock and potentially supply it with a fresh wave of buying pressure."