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3 ASX retail stocks to buy this Boxing Day

You can usually find plenty of compelling sales on Boxing Day, but it’s much rarer that the retailers themselves are in the bargain bin.

Granted, the traditional bricks-and-mortar retail industry is facing an uphill battle against the rapidly expanding online sector. As companies continue to battle it out for market share, not every retailer presents as a buy with some likely to fall much further than their current levels.

But then there are those other companies which truly deserve a second look – perhaps because of future growth prospects or because their shares are seemingly being undervalued by the market right now. For whatever reason, each of the retailers mentioned below find themselves in the bargain bin this Christmas period and could provide exceptional returns in the years to come.

1. Woolworths Limited (ASX: WOW)

Woolworths has, for a long time, been one of Australia’s most consistent and popular stocks but now finds itself out of the market’s favour. In fact, trading at $29.40, it has fallen a massive 24% since April.

Investors are concerned about the retailer’s ability to compete with Coles – owned by Wesfarmers Ltd (ASX: WES) – as well as the prospects of its new Masters Home Improvement chain. While the company may struggle in the near-term, this could be one of the best stocks a Foolish investor could buy this Christmas – particularly with its 4.9% fully franked dividend yield.

2. JB Hi-Fi Limited (ASX: JBH)

JB Hi-Fi, a specialty discount retailer, also finds itself out of the market’s favour with its shares having plunged 32% since January. Investors are likely concerned about consumer confidence as a result of the May Federal Budget and the rising unemployment levels, as well as the fact that much of JB Hi-Fi’s FY14 profit growth came from cost-cutting initiatives rather than improved sales.

2015, on the other hand, could be a big year for JB Hi-Fi. Firstly, the company will continue to roll-out its new HOME format stores which offers a huge avenue for growth in the coming years, while the RBA is looking increasingly likely to cut interest rates further, which would increase consumer spending. At $15.32, JB-Hi-Fi also offers a 5.7% dividend, fully franked.

3. Reject Shop Ltd (ASX: TRS)

Shareholders of The Reject Shop have had a year to forget with their shares down 65% thus far. The discount variety retailer suffered from weak Christmas and Easter sales in FY14, while its existing stores also struggled to increase sales, with growth mainly coming from the opening of new stores.

Although it’s been extremely disappointing for shareholders, there is some hope moving forward. Firstly, the company remains relatively protected from the online sector due to its selling of low-margin goods, giving it an advantage over other bricks-and-mortar retailers. The company will also provide greater shelf space to higher sales and margin growth departments to drive sales growth higher. The company is tipped to distribute 32.5 cents per share in dividends in FY15, putting it on a fully franked yield of 5.3%.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

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