One of the best places to discover cheap stocks is amongst unloved sectors of the market. Two of the most obvious sectors right now are the iron ore and mining services sectors.
Investors scouring these two sectors will be reviewing leading companies such as Fortescue Metals Group Limited (ASX: FMG) and Monadelphous Group Limited (ASX: MND). Their share prices have fallen 38.5% and 30.6% respectively in 2013.
Whilst it is almost certain that there are opportunities to buy some bargains within these two sectors of the market, arguably they are minefields best avoided given the cloudy outlook for commodity prices.
A better alternative
Instead, I'd suggest another unloved sector worth looking at – and one which perhaps isn't quite so dangerous – the consumer discretionary sector.
The sector currently is home to plenty of retailers which could be described as 'fallen angels' and some of them are starting to look quite appealing from a pricing perspective.
Here are three that could be worthy of closer inspection.
Kathmandu Holdings Ltd (ASX: KMD) is down 10% calendar year to date and trading close to its 52-week low. Despite the poor share price performance, the outdoor adventure retailer reported solid full year results this week accompanied by an encouraging outlook.
Super Retail Group Ltd's (ASX: SUL) share price has plummeted 37.5% over the course of 2013 and is also currently trading near its yearly low. The group has an impressive track record of acquisitive growth and according to at least one major broker earnings per share growth is forecast to return to a double-digit rate over the next two years.
Reject Shop Ltd (ASX: TRS) is most certainly a 'fallen angel' with the stock price down nearly 50% due to investor concern about the discount retailer's growth model. With many of its newer stores maturing in the coming year, a more sustainable earnings base should set in, which could lead the market to once again view the stock in a more favourable light.
