Yesterday the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) failed to sustain its early rally as investors sold down retail stocks after a number of shock downgrades were issued including by Reject Shop Ltd (ASX: TRS).
The downgrades were a reminder for investors that retailers with poor strategic plans make for dangerous investments even if these weaknesses are compensated for by a low price. It is also a reminder that the consumer discretionary sector in general is facing a number of headwinds, particularly increased competition from new market entrants and consumers who demand the lowest price every time.
While the downgrades could keep rolling in and investors should be cautious, here are three consumer discretionary retailers that could be worth a closer look.
Super Retail Group Ltd (ASX: SUL) has an offering that is well positioned within the Australian marketplace. While the company still faces competitive threats, including from the newly listed Burson Group Ltd (ASX: BAP), Super Retail does still have a commanding position in auto, sport and leisure and offers shareholders a solid dividend yield.
Premier Investments Limited (ASX: PMV) is arguably the best discretionary retailer in Australia given that it is run by Solomon Lew who has built himself a billion dollar fortune through investments in retail and apparel assets. While Premier is also facing headwinds, its huge cash balance will almost certainly see Lew make another value accretive acquisition during the current down cycle.
JB Hi-Fi Limited (ASX: JBH) has positioned itself as the go-to shop for the cheapest and best priced electronics. While the company does face competition from a rejuvenated Dick Smith Holdings Ltd (ASX: DSH), JB’s position as retailer of choice for electronics purchases means it may have a long-term advantage.
An even better bet than these retailers!
Despite all the negative headlines, the current takeover offer for David Jones Limited (ASX: DJS) shows that suitors can emerge and arguably the sector is ripe for consolidation. With so many retailers trading near their 52-week lows it could be time for investors to do some bargain hunting of their own!
We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.
And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!
*Extreme Opportunities returns as of June 5th 2020
Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
- 3 ASX stocks to buy now to get rich later – October 20, 2016 1:34pm
- Why this fund manager is worried about the sustainability of bank dividends – October 18, 2016 7:56am
- Here’s why I might buy these 2 beaten-up share bargains – October 17, 2016 4:18pm