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4 emerging retailers in the buy zone

Last week’s release of the Westpac Melbourne Institute Index of Consumer Sentiment showed a 4.7% increase in September compared with the previous month. The bulletin from Westpac announcing the results stated: “This is a very strong result. It is the highest print for the Index since December 2010. If sustained, it indicates that the Reserve Bank’s series of rate cuts which began in November 2011 are finally gaining strong traction with households.”

With that consumer data in mind here are four emerging retail stocks which could be worth a closer look.

Fantastic Holdings (ASX: FAN) sells furniture through its store network, which includes the retail brands Fantastic Furniture and Plush. Fantastic is well positioned to benefit not only from improving consumer sentiment but also from the high rate of home sales and any pick-up in new home builds. At its recent full year results – which were in line with guidance — the company declared a final dividend of 3 cents, bringing the total dividend for the year to 10.5 cents. At its current share price of $2.43 that implies a trailing yield of 4.3%.

Kathmandu (ASX: KMD) is a well-known outdoor and adventure focussed retailer which is still opening new retail stores. Of the three brokers surveyed by Morningstar, two have a “strong buy” recommendation on the stock, while the third has a “hold” recommendation.

Premier Investments (ASX: PMV), the company founded by billionaire Mr Solomon Lew, is the corporate entity that owns retail brands including Just Jeans, Jay Jays, Peter Alexander and Smiggle. Its recently released results — you can read more about them here — highlighted the promising growth potential from the Peter Alexander and Smiggle brands. Coupled with significant cash on the balance sheet and a strategic stake in appliance maker Breville Group (ASX: BRG) there are a number of positives surrounding this stock.

Super Retail Group (ASX: SUL) offers investors exposure to some of Australia’s favourite pastimes. Its portfolio of stores, which operate under a number of brands including Supercheap Auto, Ray’s Outdoors and Rebel, sell everything from car accessories and bikes, to fishing and sports. Of the seven brokers surveyed by Morningstar, three have a “strong buy” and one has a “moderate buy” on the stock.

Foolish takeaway

While a positive consumer sentiment survey is certainly no guarantee that every retailer will benefit, it does provide an investment theme that some inquisitive investors will want to explore further.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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