News this week that Harvey Norman Holdings Limited (ASX: HVN) had the inglorious honour of 'winning' a contest for the "world's most overpriced stock" understandably wasn't well received by founder Gerry Harvey.
While the analyst with the winning report made a number of good points, the alternate view that Harvey Norman is leveraged to a rebound in consumer spending – particularly on big ticket household items – is a strong argument too.
The pros and cons for investing in Harvey Norman might make it a stock to avoid for risk-averse investors but that doesn't mean the whole retail sector should be avoided.
Certainly not all retail stocks are necessarily a buy and some are obviously still doing it tough, as The Reject Shop Ltd's (ASX: TRS) recent quarterly update highlighted. However, the tough conditions now look to be fully priced into some stocks, as the recent rally in The Reject Shop's share price suggests.
Now could be the time to selectively add retailers to your portfolio
Dick Smith Holdings Ltd (ASX: DSH) this week announced improving sales and stated that it saw significant opportunities to expand its store presence. With the stock trading on a forecast price-to-earnings (PE) ratio of just 10x and sporting a forecast yield approaching 7%, it's a stock worth considering.
Kathmandu Holdings Ltd (ASX: KMD) is another stock worth considering. Until recently the share price had been on a tear, gaining ground to an all-time high. Then in the past few months it has dropped from $3.85 to $2.64.The stock is now trading on a forward PE and yield of approximately 13x and 4% respectively.
Super Retail Group Ltd (ASX: SUL) is also worth inspection by investors looking to add retail exposure to their portfolio. The stock is down 42% over the last 12 months, yet its market position remains strong. The stock is on a forecast PE around 13x and with a yield nearing 5%.
