That’s especially true when you indulge in aggressive investing in consumer stocks and buy small retailers. They tend to be less well-established than larger companies, such as Canadian Tire. However, aggressive investing in consumer stocks also holds the potential for spectacular gains.

(In a just-published issue of Stock Pickers Digest, our newsletter for aggressive investing, we update our buy/sell/hold advice on a retailer that has risen 36% for us in the past year — and could go even higher. Read on for further details.)

To cut your risk and earn higher profits when aggressive investing in the consumer sector, it’s especially important to focus on retail chains that can adapt quickly and prosper in the fast-changing retail landscape.

This aggressive investing stock’s recent moves put it in a good position to profit from the rebound

In the latest Stock Pickers Digest, we’ve updated our buy/sell advice on Reitmans (symbol RET.A on Toronto). The company has made a number of smart moves to deal with rising competition and a difficult economy.

Reitmans owns 982 women’s clothing stores across Canada. The chain consists of 369 Reitmans, 165 Penningtons, 163 Smart Set, 124 Addition Elle, 76 Thyme Maternity, 66 RW & Co. and 19 Cassis stores.

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The weak economy and higher unemployment in Ontario and Alberta hurt Reitmans’ sales and profits in 2009. In response, the company spent more on advertising and closed unprofitable stores. These moves have helped Reitmans profit as consumer spending has rebounded.

However, a recovering economy hasn’t taken the company’s attention away from controlling its costs. Reitmans continues to monitor its regional markets, and open and close stores as necessary. This year, it’s opening 30 new stores, closing 11 outlets and remodelling 30 stores.

Higher sales, strong Canadian dollar push earnings higher

In the three months ended May 1, 2010, the company’s earnings jumped 111.1% from a year earlier. Sales rose 3.3%. The higher sales were the main reason for the earnings increase. The Canadian dollar’s strength against the U.S. dollar also helped, because Reitmans pays its Chinese suppliers in U.S. dollars.

The company’s sales are still rising: in the month of May, its sales rose 7.3% from May 2009. Same-store sales climbed 5.4%.

As we mentioned, Reitmans has moved up 38% for us in the past year. In the latest Stock Pickers Digest, we look to see if it can go even higher.

You can get our full analysis and clear buy/sell/hold advice on Reitmans and 19 other aggressive investing picks in the latest Stock Pickers Digest. What’s more, you can get this issue absolutely free. Click here to learn how.

By hidden value, we mean valuable assets that are not getting the attention they deserve from investors. When a company’s assets are wholly or partially hidden, the stock trades for less than it’s really worth, so you get to buy at a bargain price.

Hidden assets come in many forms. For example, companies often carry their real-estate assets on the corporate books at its purchase price, even though its value has multiplied many times over the years.

A company’s brand name is another good example of a hidden asset. Balance sheets often fail to assign any value to brands, even those household names that have built up multitudes of loyal customers over the years.

La-Z-Boy (symbol LZB on New York), one of the high return investments we cover in Wall Street Stock Forecaster, provides an excellent example. (The company’s shares have shot up dramatically over the past 14 months. More on that below.)

La-Z-Boy’s enduring brand name helps it maintain customer loyalty

La-Z-Boy was founded in 1929 by cousins Edward Knabusch and Edwin J. Shoemaker. Their first chair was a porch chair with a reclining mechanism. They then upholstered the chair so it could be used year-round. To name their new chair, the cousins held a contest, and La-Z-Boy was the winning entry. Since then, the brand has built a strong reputation for quality and a loyal customer base.

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Aside from upholstered reclining chairs, the company makes reclining sofas, and imports wooden furniture, such as tables and entertainment centres. It sells its products through both large department stores and its La-Z-Boy Furniture Gallery stores.

Strong brand, cost cuts have helped La-Z-Boy profit in the recovery

Furniture manufacturing is a cyclical industry, weak U.S. housing markets have hurt new furniture demand. That caused sharp declines in La-Z-Boy’s sales and profits.

However, the company’s strong brand and customer loyalty helped sustain it while it made the necessary cuts to deal with the weak economy. La-Z-Boy’s aggressive cost-cutting plan included laying off 25% of its workforce, shifting production to low-cost countries, such as Mexico, and closing unprofitable stores.

Thanks in part to this plan, La-Z-Boy reported earnings of $0.18 a share in its most recent quarter (which ended January 23, 2010). A year earlier, it lost $0.08 a share. (These figures exclude costs related to the restructuring.)

Sales rose 5.7%, to $305.1 million from $288.6 million a year earlier. That’s the first time in more than four years that the company’s sales have increased on a year-over-year basis.

The high return investment’s shares have shot up from $0.53 in March 2009 to around $11.00 today. That’s a gain of 1,975%. We think La-Z-Boy and its strong brand name may have further gains ahead.

For our latest buy/sell/hold advice on La-Z-Boy and dozens of other potential high return investments in the fast-changing U.S. market, you should subscribe to Wall Street Stock Forecaster. Click here to learn how you can get a one month free trial.

It’s important to keep in mind that all aggressive investing stocks – including those we recommend in Stock Pickers Digest – expose you to a higher degree of risk than conservative selections.

However, there are many ways to cut your risk in aggressive investing and still put yourself in position for large returns. Here are three key strategies you can easily apply to the part of your portfolio you devote to aggressive investments. They form the core of the advice we give you in Stock Pickers Digest.

Aggressive investing strategy #1: Because aggressive stocks expose you to a greater risk of loss, we recommend limiting your aggressive holdings to no more than, say, 30% of your overall portfolio.

Ultimately, the percentage of your portfolio that should be held in either conservative or aggressive investments depends on your personal circumstances and risk tolerance. An investor with a longer time horizon or without the need for current income from a portfolio can invest more money in aggressive stocks. But we think 30% is a good rule of thumb.

Do you have part of your portfolio that you play with? The part you're willing to be a little more aggressive with? Then let me recommend my Stock Pickers Digest newsletter. You get the stocks my proven Quick Profit/Value System ™ has identified as having the potential to give you 50% gains -- or more -- in 6 months or less. Click here to learn how you can get started right away.

Aggressive investing strategy #2: Focus on investment quality when looking for aggressive stocks with the potential for large returns. When we look for aggressive investments to recommend, we zero in on companies that have established a business and have at least some history of building revenue and cash flow. We also look for companies that stand to benefit as the economy continues to improve, and have proven management and long-term growth plans.

That’s opposed to so-called concept stocks, many of which are start-ups or companies that look to profit from next week’s or next year’s investor fad. These companies can generate large returns in a good year. In the long run, though, they are likely to cost you money.

Aggressive investing strategy #3: Look for aggressive stocks with hidden value — value that attracts far less investor attention than it deserves. That gives buyers a bargain. It may also attract takeover bids.

Hidden assets can consist of real estate or underused brand names. For example, companies often carry their real-estate assets on the corporate books at its purchase price, even though its value may have multiplied many times over the years. Balance sheets often fail to assign any value to brand names, even those household names that have built up multitudes of loyal customers over the years.

Research and development spending by technology stocks is one of today’s best-hidden assets. High research and development budgets let tech stocks keep adding profitable new products to their lines and improving existing ones.

Looking for hidden value can produce large returns — and when you lose, you generally don’t lose that much.

You can get our latest analysis, including our buy/sell/hold advice, on 19 aggressive stocks in the latest Stock Pickers Digest. Click here to learn more about how you can get one month free when you subscribe now.

The company gets 62% of its sales by making high-quality wallpaper-base products, as well as high-grade graphic papers and other specialty papers. The remaining 38% of its sales comes from security paper used in banknotes, passports and visas.

In the three months ended December 31, 2009, sales rose 10.2%, to $51 million from $46.3 million a year earlier. Earnings per share, excluding one-time items, rose 67.9%, to $0.47 from $0.28. The higher sales were part of the reason for the gain. Fortress also cut its costs. It holds cash of $33.2 million, or $3.25 a share, and has low debt.

In January 2010, Fortress won a contract to make 2.5 million electronic passports with chips that hold personal data and other biometric information. Demand for these passports is growing because of rising global concerns about border security.

As well, Fortress is buying a pulp plant in Thurso, Quebec, for $3 million. It will convert this plant to make a type of cellulose that is mainly used in viscose-fibre (rayon) products, including clothing. This fibre has strong growth prospects, particularly in warmer countries with growing economies, such as Asia and South America. The Quebec and federal governments will contribute grants, tax credits and loan guarantees for most of the $153-million conversion.

Fortress’ expansion plans add growth opportunities, although the cost and complexity of its plans add risk. However, the stock trades at just 13.0 times the company’s forecast 2010 earnings of $1.80 a share.

Fortress Paper is a buy for aggressive investors.

In 2002, the government let Amazon open a Canadian web site, www.amazon.ca, but would not let the company build a warehouse because of concerns about foreign ownership of Canadian cultural industries. Right now, Canadian orders are handled in the United States, and shipped into the country through a subsidiary of Canada Post.

The new warehouse should help Amazon cut its costs. That should let it gain market share in Canada by lowering the prices of its books and merchandise.

Amazon.com is still a hold.

Casey’s owns 1,507 convenience stores in the U.S. Midwest. The stores offer a wide variety of food and non-food merchandise, as well as gas, under the names Casey’s General Store, HandiMart and Just Diesel.

Casey’s has rejected Couche-Tard’s all-cash bid of $36 a share as inadequate. Casey’s is now trading at $39.32, which is 9.2% above Couche-Tard’s offer. That suggests investors expect a higher bid.

Large acquisitions like this (the offering price is 56% of Couche-Tard’s market cap) entail significant risk. However, Couche-Tard has a proven history of success in integrating the companies and assets that it buys. Regardless of the outcome of the takeover bid, we like Couche-Tard’s outlook.

Alimentation Couche-Tard is a buy.

DUNDEEWEALTH $14.63 (Toronto symbol DW; SI Rating: Speculative) (1-800-301-6745; www.dundeewealth.com; Shares outstanding: 119.8 million; Market cap: $1.8 billion: Dividend yield: 1.9%) manages investments and operates a brokerage business. It also owns the Dynamic family of mutual funds, and provides financial-planning and investment advice.

DundeeWealth has raised its quarterly dividend by 100%, to $0.07 per share from $0.035. The shares now yield 1.9%.

DundeeWealth is still a buy.

CYBERPLEX $0.66 (Toronto symbol CX; SI Rating: Speculative) (416-597-8889; www.cyberplex.com; Shares outstanding: 68.5 million; Market cap: $45.2 million) reports that its revenue fell 15.7% in the three months ended December 31, 2009, to $24.3 million from $28.9 million a year earlier. Earnings fell 78.2%, to $1.1 million, or $0.02 a share, from $4.9 million, or $0.09.

There were two main reasons for the lower earnings: The company increased its spending on new technology as part of its expansion, and foreign-exchange rates worked against it. The latest quarter included a pre-tax foreign-exchange loss of $975,472, compared to a gain of $1.3 million a year earlier. Cyberplex holds cash of $21.8 million, or $0.32 a share, and has no debt.

The company operates in a complex and ever-changing market. Still, it should continue to benefit as the economy recovers and consumer spending rises.

Cyberplex is a buy for highly aggressive investors.

However, Indigo’s inventory and distribution costs have also fallen. That’s because it recently upgraded its computer systems. These savings should help it match any price cuts by Amazon. As well, its new Kobo e-book reader is cheaper than Amazon’s Kindle.

Indigo is a buy.

Westaim paid $264.2 million for Jevco. Most of the money came from the $275 million that Westaim raised by selling 550 million common shares for $0.50 each. That raised the total outstanding to 644.2 million shares.

The Alberta Investment Management Corporation (AIMCo) bought $148 million of these new shares. AIMCo, a crown corporation, manages Alberta’s public-sector pension plans and other special funds. Westaim structured the sale to limit AIMCo’s ownership to 40%.

Jevco is losing money, but its losses are shrinking. It also faces strong competition from larger insurers. As well, its focus on high-risk drivers adds risk. However, Westaim bought Jevco for roughly 5% less than its book value. Moreover, AIMCo’s involvement should help Jevco expand to western Canada.

As a result of this purchase, we’ve moved Westaim from the Manufacturing sector to the Finance sector. Hold.

The company’s assets under management rose 41.6%, to $391.3 billion at the end of 2009 from $276.3 billion a year earlier. Rising stock markets were the main reason for the increase. As well, the improving economy spurred higher demand for mutual funds.

Despite these gains, average assets under management still fell 10.3% in 2009. As a result, T. Rowe Price’s revenue fell 11.8% in 2009, to $1.9 billion from $2.1 billion in 2008. Earnings dropped 11.7%, to $433.6 million from $490.8 million. Earnings per share fell 8.8%, to $1.65 from $1.81, on fewer shares outstanding.

However, T. Rowe Price’s outlook continues to improve with the overall economy. It has also launched new products, such as actively managed exchange-traded funds, that should fuel its growth.

As well, T. Rowe Price recently paid $142.4 million for 26% of UTI Asset Management, India’s fourth-largest wealth-management firm. T. Rowe Price is also looking to expand in China. The U.S. accounts for 88% of its assets under management, so expanding internationally helps diversify its risk.

The company’s earnings should rise to $2.40 a share in 2010. The stock trades at 22.9 times that figure.

T. Rowe Price is a hold.

State Street has agreed to pay $313 million to settle lawsuits that accused the company of selling investors securities backed by subprime mortgages without warning of the risks involved. This latest payment is in addition to $350 million that State Street has already paid to settle earlier lawsuits.

If you exclude these payments and other unusual items, State Street would have earned $2.0 billion in 2009. That’s down 14.9% from $2.4 billion in 2008. In May 2009, State Street issued $2 billion of common shares and used the proceeds to pay back its TARP loans. As a result of the extra shares, earnings per share fell 26.7%, to $4.11 from $5.61. Revenue fell 16.4%, to $8.8 billion from $10.5 billion.

State Street’s earnings should rise to $4.30 a share in 2010. The stock trades at a low 10.5 times that figure.

However, the company holds $12.1 billion of securities backed by mortgages, student loans and credit-card loans. If the economy weakens, State Street may have to write down the value of these holdings.

State Street is a hold.