Who knows the minds of teenagers?

The company that does can often do very well, and investors who ride that company's stock can profit handsomely. If you haven’t noticed lately, teens are toting cell phones, listening to iPods and wearing jeans.

In December, my daughter, who is 16, had a party at our house. A dozen or so teens showed up and had a grand time. Most of them wore jeans. At the local high school, which has some 3,000 students, almost everyone is in “uniform”…that is, wearing jeans.

Jeans are big business, and teens are big buyers.

To my surprise, I am told by the young people that Gap Inc. (GPS) jeans are out with high school kids. One teen said, “Gap’s jeans are for older people, and they are sometimes too baggy. They are not hip. Most kids don’t go to the store. It is kind of dull.”

So, where do they go? One place in particular is Abercrombie and Fitch (ANF) and its Hollister unit, which caters to teens.

One young lady who raves about Hollister said the jeans fit great. She also likes the store's appearance because of the loud music and the perfume smell. Also, she is enthralled by the California theme with the fitting rooms designed as beach cabanas and palm trees positioned throughout the store.

Most teens wear jeans to high school almost every day. They like them because they are comfortable, can be worn with almost everything and, most importantly, they can make you look thin and tall.

It seems the teens are good stock pickers too although they may not know it.

Abercrombie’s stock has soared from 20 to 66 in the past three years. That’s a gain of 230 percent. The stock remains in a solid up trend. Meanwhile, Gap has struggled. Its stock during the past three years has inched ahead from 16 to just 19, a meager gain of just 19 percent.

For the fiscal year ending January 31, 2007, Abercrombie should check in with a 23 percent increase in earnings to $4.61 a share from $2.75 a year ago. The fiscal fourth quarter should show a 20 percent gain in profits.

Abercrombie has approximately 850 stores and annual sales of approximately 2.8 billion dollars. Interestingly, the company has come under criticism for some of its ad campaigns.

Gap, on the other hand, is expected to show an 18 percent drop in earnings for the fiscal year ending January 31, 2007 to $1.01 a share from $1.24 a year ago. Net for the fiscal fourth quarter should decline 9 percent. Gap has 3,000 stores and annual sales of approximately $16 billion.

3-Year Chart of Abercrombie and Fitch (ANF)

3-Year Chart of Gap (GPS)

Another hot jean stock is American Eagle Outfitters Inc. (AEOS). It has soared from 8 in 2003 to 47, a massive gain of 487 percent. This fiscal year ending January of 2007, profits should leap 31 percent to $2.52 a share from $1.92 a year ago. 

American Eagle also sells shirts, shorts, sweaters, skirts, footwear, belts and bags. It purposely targets its products to men and women ages 15 - 25. It operates approximately 900 American Eagle stores in the U.S. and Canada. Annual sales were approximately 2.3 billion dollars.

Escada jeans: $10,000

Some upscale retailers, such as Neiman Marcus, Nordstrom and Saks Fifth Avenue, sell high-priced jeans. One jean maker that is benefiting is True Religion Apparel Inc. (TRLG). Its stock was a penny issue back in mid-2004. It soared to a peak of 24 in 2006. As of December, it is 15. True Religion jeans go for more than $200.

One new issue that came out in July was J. Crew Group Inc. (JCG), which sells clothes, including a variety of jeans. The stock initially traded at approximately 28. It is now 40, up 43 percent in just six months. Earnings growth should be approximately 25 percent.

Analysts estimate that some 450 million pairs of jeans are purchased every year in the U.S. It is a cyclical industry with fashion trends, lifestyle and celebrity endorsements as driving factors.

For eSignal investors, keeping a close watch on the top-performing retail apparel stocks and their play into denim could pay off big. Also, with the current bull market in place, one should be on the lookout for any new IPOs with a play on jeans.