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Top retailers for your watchlist now

The retail industry appears to be a particularly difficult space for investors at present. Companies which were “market darlings” have, in a short space of time, turned into “fallen angels”. The fallen angels list includes Super Retail Group Ltd (ASX: SUL) and Reject Shop Ltd (ASX: TRS).

The economic and structural challenges facing the industry makes it difficult to have high conviction about the future earnings potential of a number of retail stocks, however there are a few companies which stand-out.

Value

Shareholders in online travel and accommodation booking services provider Wotif.com Holdings Limited (ASX: WTF) have watched their shares plummet from a high of $6.04 in the past 12 months to their current low of $2.38. The severe drop in price was largely in response to a market update in December which stated that the company expects the interim net profit after tax for financial-year (FY) 2014 to be below the previous corresponding period.

This update has led analysts to downgrade their expectations for earnings and reassess the future growth profile of Wotif.com. Currently, according to Morningstar’s data, the analyst consensus earnings per share (EPS) forecast for FY 2014 is 19.2 cents per share (cps). At $2.38 this implies a forward price-to-earnings (PE) multiple of 12.4.

The question for investors is will new competitors entering the market erode Wotif’s future earnings?

High Yield

Pacific Brands Limited (ASX: PBG) is trading on a mouth-watering fully franked dividend yield. The board increased the full-year dividend in FY 2013 to 5 cps from 4.5 cps the previous year. The increased pay-out would suggest the board has confidence earnings have bottomed and a 5 cps dividend is maintainable.

Analysts appear to more or less agree. Morningstar’s data shows a consensus FY 2014 dividend forecast of 4.9 cps. With the stock trading at 61 cents, this equates to a forecast yield of 8%.

Growth

Breville Group Ltd (ASX: BRG) has an exciting growth profile thanks to its entry into the North American market where its kitchen appliances have proved popular. While the outlook for earnings in the current financial year looks muted, according to consensus estimates FY 2015 should see EPS rise by 18.6%.

If Breville manages to hit consensus, then the company is trading on a FY 2015 PE multiple of 18.4. This may seem a little too pricey for some investors, which may relegate Breville to the watchlist for now.

Foolish takeaway

The recent market pullback is leading to more appealing prices for stocks in general. Now is the time for investors to review their watchlists and be ready to buy when they see value.

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Motley Fool contributor Tim McArthur owns shares in Pacific Brands Ltd.

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