StreetAuthority's Top Ten Stocks for 2005 and Beyond

	Paul Tracy Street Authority.com
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Important Note: Below you will find the first several pages of an in-depth 30-page special report entitled "StreetAuthority's Top Ten Stocks for 2005 and Beyond." In this brand new report StreetAuthority.com founder Paul Tracy and his staff introduce readers to ten stocks that they feel are poised to deliver above-average returns not only throughout the 2005 calendar year, but also in the years that follow.

The report starts out with a brief summary of the various criteria that Mr. Tracy and his staff look for in a quality long-term investment. Among other things, these include:

The report then moves into a detailed profile of each company. In the process, Mr. Tracy and his staff explain why they believe each of these ten high-quality stocks will deliver superior returns in the years ahead.

We sincerely hope that you benefit from the following investing ideas and analysis. Although we're happy to provide you with one company profile from this report at zero charge below, please note that to read the full version of this report, which contains an in-depth look at nine other high-quality stocks, you'll need to subscribe to our "Market Advisor" newsletter. To learn more about that publication, which is completely separate from this complimentary newsletter, please visit the following link:
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SAUCONY (SCNYB)

Business Overview
Saucony designs and sells footwear and athletic apparel under four main brands: Saucony, Saucony Originals, Hind and Spot-Bilt. Although the company sells some casual footwear, its main focus is clearly on athletics and, in particular, running and walking shoes for both men and women. That includes shoes with highly specialized features, such as arch and ankle support for runners experiencing foot pain.

Outside the running shoe business, Saucony also produces specialized shoe products like soccer and football cleats. Meanwhile, through its Hind brand name the company sells athletic apparel such as sports bras and sweat-resistant shirts.

Competitive Advantages
There are many competitors in the shoe and athletic apparel businesses, many of which are much larger than Saucony -- Nike and Reebok, among others, spring to mind. Despite this, however, Saucony's competitive moat is a lot wider than you might at first imagine.

More specifically, the company has garnered a solid reputation and a loyal, almost cult-like following among a core base of devoted running fans. This highly profitable niche business isn't fully exploited by the big athletic shoe manufacturers. And because reputation and brand loyalty among the most committed athletes is high, it would be very difficult for the likes of Nike to attack this niche effectively.

One of the easiest ways to gauge the strength of a consumer brand franchise is to watch trends at the retail level. Specifically, watch how many retailers stock a particular brand and what a retailer's perception of the brand is. On both measures, Saucony scores well.

A poll conducted by Sports Marketing Survey at the end of 2004 showed that 62% of the retailers surveyed had decided to carry Saucony's running shoe brands, up +11% from 2003 levels. That represented the largest jump in retail penetration among any running shoe brand. Even better, a majority of retailers stocking Saucony shoes reported that they planned to stock more of the company's products in 2005.

As for brand perception, the same survey was enlightening. Over 90% of retailers characterized Saucony's brands as "performance" running shoes. That number is up well over +30% from what the same survey revealed in 2000. These strong numbers are a testament to Saucony's strong brand reputation in the high-performance athletic shoe business.

Growth Drivers
Going forward, Saucony's growth will be fueled by two main factors: an improving product mix and increased retail store penetration.

On the retail side, as we explained above, it's clear that more retailers are stocking Saucony brands. Simply put, that means the company is putting its products in front of more and more consumers every year. And this trend could carry on for some time. Although over 60% of retailers carried Saucony products in 2004, it's not difficult to imagine that figure eventually jumping up to over 90%, especially given the popularity of the firm's brands. This increased exposure should result in higher sales in the years ahead.

But equally important is the company's changing product mix. Specifically, throughout 2004, Saucony experienced greater demand for its specialized running shoes than its more traditional cross-trainer lines, which it markets mainly under its "Saucony Originals" line. The company also has a sizeable backlog of orders for 2005 -- most of the backlog is for more advanced, high-performance shoes.

High-performance lines carry fatter profit margins than simple cross-trainers. That should come as little surprise, as there is far more competition in the cross-trainer business than in the more specialized niche running shoe business. The fact that the company is seeing its fastest sales growth from higher-margins shoes is a major positive, and this change in mix has been behind Saucony's consistent margin expansion over the past several quarters.

Bottom line: Saucony is set to experience higher sales growth due to better exposure. And because the company's business mix is shifting toward more lucrative running shoes, each dollar in incremental sales will result in higher profits for shareholders.

Valuation and Outlook
Wall Street analyst coverage of Saucony is virtually nonexistent. In fact, there are no published earnings estimates for this relatively unknown firm. As a result, institutional players own less than 15% of the company's outstanding shares -- an unusually low figure even for a small-cap stock like Saucony. This should be a huge positive for the stock in the years ahead -- as institutions catch on to the company's impressive growth rate, they're likely to start buying up shares.

My staff and I believe that Saucony can post earnings growth in the +20% to +25% range throughout the next several years. Although that's slightly below the growth rate that the company has experienced over the past few years, it's considerably higher than the industry average. By comparison, analysts expect Reebok (RBK) to post long-term growth of around +14% and for Nike (NKE) to deliver annual earnings gains of closer to +13.5% --fully 10 percentage points less than Saucony.

Despite the firm's much stronger growth profile, however, Saucony has tended to trade at a steep discount to the likes of Nike and Reebok. On a price-to-earnings basis (P/E) that discount has been as high as 50% over the last few years. We think this valuation disparity will disappear in the years ahead as Wall Street finally gives Saucony the exposure and recognition that it deserves. In the meantime, investors have a great opportunity to snap up a high-growth stock at a bargain price.

Paul Tracy will be available to take your questions until Thursday, January 13. Please use the form below to submit your questions.