It’s been a pretty scary roller-coaster ride for investors in the consumer discretionary retail sector lately, with many stocks trading near multi-year lows. The falls have been widespread, ranging from the $1.6 billion Myer Holdings Ltd (ASX: MYR) to the $150 million Fantastic Holdings Limited (ASX: FAN). To rub salt into the wounds, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) continues to trade at multi-year highs!
For investors who follow Warren Buffett’s path and are prepared to stand apart from the crowd and employ a contrarian approach to their investing, the battered and bruised retail sector may currently be offering up some appealing opportunities.
One leading fund manager who believes this is the case is Neil Carter from IFM Investors. According to a report on Livewire Markets, Carter recently stated that the recent weakness in retail is creating a buying opportunity. IFM’s view is that the effect on household disposable income from the recent Federal Budget will ultimately prove to be very modest and as such, consumer sentiment (and presumably spending) could bounce back quickly.
Here are three stocks which Carter highlighted as top picks in the sector.
1) Automotive Group Holdings Ltd (ASX: AHE) – the diversified automotive retailer and logistics group is forecast (according to Morningstar consensus data) to earn 33.3 cents per share (cps) in FY 2015. Trading at $3.55 a share, this implies a price-to-earnings (PE) ratio of 10.7.
2) Super Retail Group Ltd (ASX: SUL) – the specialty retailer of auto, sport and outdoor goods is forecast to earn 66 cps in FY 2015; this implies a PE of 12.6.
3) JB Hi-Fi Limited (ASX: JBH) – the discount electronics retailer has just released updated guidance to the market which states that management expects profits to increase by approximately 5% this year, which is around 2.5% below Morningstar’s consensus. The market appears comfortable with the guidance and with the stock actually gaining 0.4% after the announcement. Assuming JB Hi-Fi can still hit its FY 2015 forecast the stock is trading on a PE of 13.5.