Retail may be starting to take off. The combination of low interest rates and cheaper petrol was supposed to leave more money in the pockets of consumers. Now we may be seeing more of that disposable income making its way through the economy, based on recent retail trade data.
If that's the case, what stocks should you be picking up? I have two stocks to review and give a thumbs up or thumbs down on.
JB Hi-Fi Limited (ASX: JBH) should be on the receiving end of some promising sales because its household appliances and electronics are what homeowners are looking to buy to furnish their new property purchases in a growing housing market. Interim results were disappointing because of first quarter sales weakness, but the strong 7.0% same store sales in January may be pointing to much stronger full-year earnings. The stock is up about 26% in the last six months and still offers a healthy 4.4% yield fully franked. This one should be on your stock buy list.
Department store operator Myer Holdings Ltd (ASX: MYR) was up about 8% on Wednesday following media speculation that billionaire Solomon Lew (the chairman of Premier Investments Limited (ASX: PMV)) might be sniffing around Myer as a potential takeover while the retailer struggles with sales. Myer issued an earnings downgrade just before releasing its interim results. That infuriated shareholders, some of whom have launched legal action against the company.
The Australian Financial Review reported Lew may be waiting for further earnings downgrades which could cause Myer to breach financial covenants and need a capital raising. That would put the retailer in a vulnerable position.
Should investors be jumping in to take advantage of a potential takeover bid? Until one officially comes – no. Firstly, it may never come. Would you want to buy a weak company that seems to be experiencing a structural change in its business? Again, no. If there is no offer on the table, then you must pick a stock based on its present business merits.
Hoping an offer will come is not a wise move. Would Lew or any other suitor come in with a fantastically priced premium offer? They would be hunting for bargains and offer as little as possible. The shareholders would probably jump at it given Myer's recent performance. Save yourself stress – avoid Myer Holdings.
