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Christmas Sales: Are JB Hi-Fi Limited or Harvey Norman Holdings Limited shares a buy?

Credit: Rosana Prada

The bearishness surrounding Australian retail shares could provide investors with a reasonable opportunity to buy for the long-term.

Leading into the all-important Christmas period, there were key concerns regarding the level of profitability they would enjoy.

That was particularly the case for those in the electronics space such as JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN), amid fears a potential fire sale from Dick Smith Holdings Ltd (ASX: DSH) at its stores could force them to do the same, sacrificing margins to keep their skin in the game.

But according to The Sydney Morning Herald, Gerry Harvey, executive chairman of Harvey Norman, believes Christmas 2015 is the best Christmas sales period in eight years. Drones are reportedly in high demand while staff have reportedly been instructed to focus on selling other big-ticket items such as new generation curved-screen televisions and vacuum cleaners, which are both said to be in hot demand.

Hopefully that means decent sales growth for fellow vacuum cleaner retailer Godfreys Group Ltd (ASX: GFY). Its shares are sitting at just $1.70, down from a 52-week high of $3.64 earlier this year.

What’s driving this sentiment?

Although unemployment is still quite high by historical standards, it has remained mostly steady for a while now and even fell to a seasonally adjusted 5.8% in November 2015. Low interest rates and the ongoing “Turnbull effect” are also said to be providing consumers with the ammunition to spend big this Christmas, according to The SMH, which said a total of $47 billion was expected to be spent this year.

Other forecasts provided by the Australian Retailers Association also show that Australian shoppers are expected to spend $2.3 billion on Boxing Day, with a total of $16.8 billion to be spent between then and 15 January, 2016. Conditions for the remainder of 2016 are also “tipped to be rosy”.

All in all, this bodes well for Australia’s retailers. With shares of companies like JB Hi-Fi and Wesfarmers Ltd (ASX: WES) trading at considerable discounts to their 52-week highs, now could be a great time to consider taking advantage of the consumer/investor disconnect.

In saying that however, investors also need to consider the risks in doing so. Wage growth is low which could hinder consumer spending in the future while competition is rife, including from larger, more cashed-up international rivals.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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