Sometimes it takes some perspective to see where we actually are in the economy.
Things like consumer sentiment are important to watch, but it isn't a leading indicator. Watching it too closely month by month could make investors skittish with each little rise and fall.
Another thing to remember is that for investors, we want to find stocks that are still in cheap or bargain territory before they rise. You want the fireworks to go off after you have positioned yourself well.
There are three factors that I believe put JB Hi-Fi Limited (ASX: JBH) and Super Retail Group Ltd (ASX: SUL) in bargain territory now.
The stockmarket itself is a leading indicator that could show near-term economic improvement when it is rising and hitting new highs. The S&P/ASX 200 Index (ASX: ^XJO) has been gaining since mid-2012 and is now hitting new highs. The general economy can lag the stockmarket by as much as 6-12 months.
Low interest rates drive economies with cheaper financing for businesses that eventually snowballs into better corporate earnings. Current rates are the lowest since the 1960s and could even fall a little more just to jumpstart the economy. In the meantime, the housing market is stronger than it has been in a number of years and that has flow-on effects for the economy for coming years as well.
A strong Aussie dollar will also help those retailers that source much of their goods overseas, giving them good purchasing power. It can improve margins and help these companies pay for further business expansion.
JB Hi-Fi Limited
The electronics retailer expects full year net profit to be 8.3% – 10.8% higher than FY 2013. Its new JB Hi-Fi HOME store format is growing well and the company projects it can create as many as 70 of the stores by 2016, up from the current 22 in FY 2014.
By the end of FY 2014, the company will have about 169 stores in Australia and 13 in New Zealand, so the chain still has room to expand nationwide. Electronics and appliances catch a flow-on benefit from a growing housing market.
The share price has pulled back from earlier highs and offers a 3.9% fully franked dividend yield.
Super Retail Group
The auto accessories and sports and leisure activities equipment retailer came down hard in share price when it announced that same-store sales were not as strong as normal. That made the market think that previously high earnings growth rates would suffer. The stock is up about 17% since mid-June, so the sell-off may have done its job.
A strong Aussie dollar is keeping operating earnings margins up and the company is looking towards two new large distribution centres currently being developed as the next big step in cutting costs by managing inventory better. Those savings could flow to the bottom line and boost its share price. Interestingly, the stock also has a yield of 3.9% fully franked like JB Hi-Fi.
