Top broker tipping JB Hi-Fi Limited to outperform through to February

Credit: Peter Heath

If you felt you’ve missed the opportunity to buy shares in JB Hi-Fi Limited (ASX: JBH) after its stunning ~6% rally over the past two days should take heart from a report by Morgan Stanley.

The broker thinks there is plenty of upside left in the stock and is even tipping that there is an 80%+ chance that the music and electronics retailer will continue to outperform the S&P/ASX 200 (Index:^AXDJ) (ASX:XDJ) over the next 43-odd days.

The broker’s optimism stems from its belief that the Christmas trading period has been a strong one for the retailer.

Morgan Stanley is also less worried about the arrival of in Australia as its launch had been lacklustre at best with most retailers reporting that they have felt little impact from the launch of the online shopping giant.

“Despite the recent rally we see the shares at 12.9 times FY18 P/E as cheap on an absolute and relative basis,” said the broker.

There is increasing upside risk that JB Hi-Fi will deliver a pleasing profit result and outlook statement at next month’s reporting season, and that may be enough to keep the stock rallying through the next few weeks.

The surprisingly strong retail sales figures from the Australian Bureau of Statistics (ABS) are adding to confidence of a pleasing result from JB H-Fi and its rival Harvey Norman Holdings Limited (ASX: HVN) as sales of consumer electronics had been particularly strong.

Morgan Stanley has an “overweight” recommendation on the stock with a price target of $32 a share.

It strikes me that well managed retailers that have been performing well before the arrival of Amazon should continue to do well, while those like department store Myer Holdings Ltd (ASX: MYR) and apparel retailer Speciality Fashion Group Ltd. (ASX: SFH) will likely struggle in the interim.

Having said that, I would be cautious about being too bullish on the likes of JB Hi-Fi as I am still unclear about their strategy in combating Amazon. Amazon seems to have taken a fairly passive approach in winning market share and have run few promotions of any note.

But if the sleeping giant was to awaken one day and decided to go for a land grab, it will likely be an ugly scene for the sector.

There are sectors with better tailwinds that are worth looking at. The experts at the Motley Fool have identified one that they think will make a big impact on our markets in 2018 and beyond.

Click on the link below to get your free report on this sector and the stocks to watch.

Don’t Buy A SINGLE Stock Until You Read This

While conflict overseas is all media talking-heads seem to mention these days, the billionaire founder of Tesla is losing sleep over what he sees as a far bigger threat.

Elon Musk Warns: This has “vastly more risk than North Korea”

If you missed your opportunity to get in on Google, Microsoft, or Amazon in their early days, don't let it happen again. This emerging technology trend could offer a second chance for anyone who wishes they took part in these millionaire-maker stocks.

Click here to discover more!

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.