2 retail stocks for your watchlist

Take advantage of this beaten-down industry with some great yields and potential for capital gains.

a woman

Investors regularly respond to media speculation, good news, bad news as well as their own experiences and intuition. This is fine as long as you can dissect fact from fiction and make well-informed investing decisions.

Doing some research through media articles and listening to columnists’ general ideas regarding the market and individual stocks is a great way to not only learn a thing or two, but sometimes listening to others’ views on a potential stock could change your perspective on it. It’s important to remember however that no stock is a buy at any price.

Dissecting what we can from historical trends, data, management decisions and performance metrics also cannot be used entirely by itself to determine ‘value’. So in today’s market we are tasked with finding a stock that:

  1. Has a good (or an unfairly bad) price history
  2. An eye for future growth
  3. Is undervalued

How to find newsworthy stocks

The media loves to put fear into investors’ every day, using titles like the ‘the death of [company]’ or ‘goodbye [industry]’. For example, the recent ‘mining doom’ sent investors running from stocks that had anything to do with resources, mining or mining services. Savvy investors could have realised substantial capital gains as a result of the sector being heavily undervalued. Investors who bought shares in Fortescue (ASX: FMG) or Ausdrill (ASX: ASL) on 1 July 2013 would today be sitting on capital gains of 50% and 100% respectively.

Source: Google Finance

Some investors realised that shares were undervalued and despite the possible long-term consequences for the stocks, the price was too good to pass up. Buying average stocks at the best price is better than buying the best stocks at an average price.

Recently, the media storm passed over retailers because traditional brick-and-mortar shop fronts were (are) going to get swept away by online shopping giants such as Ebay. It may be true that retail shopping will one day be a truly digital experience but it’s not there yet and there are some good stocks ripe for the picking. We’ve seen it all too recently with the run-up of popular names such as JB Hi-Fi (ASX: JBH) and Harvey Norman (ASX: HVN).

Source: Google Finance

With consumer confidence growing and interest rates likely to stay on hold or go lower, investors could take advantage of huge dividends and a boost in consumer confidence by buying stocks in the beaten-down retail space. Two such stocks that are deserving of a spot on watchlists are David Jones (ASX: DJS) and Myer (ASX: MYR).

Foolish takeaway

Every day new advisors and financial commentators will try and sell you an investing strategy or technique that’s ‘bulletproof’ or ‘guaranteed results’. However the only true strategy that works for you is your own. Start creating it today by building up a watchlist of good quality stocks that the market has ignored.

Myer and David Jones pay great dividends but they’re still not our favourite. Take a look at the Motley Fool’s very best  income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Owen Raszkiewicz owns shares in Myer.   

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