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4 stocks for your Christmas hamper

Many apparel retail businesses essentially just survive all year waiting for Christmas to arrive.

Investors who analyse the skew between the first half and second half earnings of some apparel businesses will notice that the Christmas period is often responsible for a significant percentage of overall earnings, which makes the annual festive event of critical importance to those companies and shareholders alike.

From an investment point of view there is obviously something a little uncomfortable about investing in companies that have too much riding on a specific project (contractors) or a single event (Christmas).

While apparel businesses such as Country Road (ASX: CTY) and Noni B (ASX: NBL) will likely experience the usual Christmas trading bounce, actually achieving growth in underlying same-store sales may be difficult this year given the structural challenges and lacklustre consumer environment these businesses face. For this reason the following retailers are possibly better placed to grow their sales over the upcoming period and importantly, also have positive outlooks for the New Year.

Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) are two of the largest retailers in Australia and both offer investors significant exposure to retail sales over the Christmas period. Not only will the majority of domestic consumers purchase food, including their turkey and ham, from either a Woolworths or a Coles supermarket, but they will also purchase alcoholic beverages from the likes of Dan Murphy’s and BWS.

The Reject Shop (ASX: TRS) also enjoys a Christmas boost thanks to its seasonal stock selection of Christmas decorations. Of greater importance however is that The Reject Shop is in the middle of a significant store roll-out phase that means adding this company to your Christmas hamper has the potential to be sound investment for 2014.

Super Retail Group (ASX: SUL) has cleverly positioned itself in niche markets that are less prone to online competition and price deflation than other retailers, such as those exposed to apparel and electronics. With brands including BCF, Rebel and Super Cheap Auto, the company covers many bases for consumers purchasing presents at Christmas while its quality management and market position makes the firm’s outlook promising for 2014 too.

Foolish takeaway

While some market participants will talk of a ‘Christmas rally’ and others will have a short-term focus on how companies will perform over the December quarter, long-term investors will acknowledge the seasonality of retailing and instead focus on retail stocks with the best long-term growth potential.

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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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