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Citi picks Accent Group Ltd as best small-cap retailer to buy during the market sell-off

Credit: Ann1513

No one will blame you for being reluctant to buy the current market dip although at some point the pullback will represent a great buying opportunity for the astute investor.

Now is probably not the time to stick your head out though with the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index dropping another 0.8% into the red to take its losses to 4% since last Thursday. I think we till soon be re-testing the 6,000 point level.

But there’s one group of stocks that are probably worth keeping an eye on for a buying opportunity. This group is the small retail sector which has punched above its weight during last month’s reporting season.

Citigroup has ranked these stocks in order of preference and the broker is most bullish on its footwear and apparel group Accent Group Ltd (ASX: AX1).

The stock has moved from number three to the top spot following its profit announcement and positive FY19 outlook.

Citigroup thinks the outlook might even be too conservative given the retailer’s strong like-for-like (LFL) sale momentum, significant gains in its online sales effort and its international expansion.

Further, Accent’s chief executive has recently bought around $1 million worth of his own shares and that’s always a great sign. Citigroup is recommending Accent as a “buy” with a $1.75 price target.

Jewellery retailer Lovisa Holdings Ltd (ASX: LOV) takes the second spot (although it was bumped down from the top rank) as its international expansion is running ahead of the broker’s expectations.

While many are concerned about its high price-earnings (P/E) multiple, which is hovering at around 26 times based on FY19 consensus, Citigroup feels this is justified given its price earnings-to-growth (PEG) ratio is at 1.2 times – a 19% discount to its Aussie peers.

Citigroup has a “buy” rating on the stock with a $12.30 price target.

The third best buy from the sector is baby products retailer Baby Bunting Group Ltd (ASX: BBN). Its profit results weren’t that exciting, but it’s the outlook that’s getting the market excited.

Recent insider sales weren’t a good look and may indicate that the best gains are over, but Citigroup believes there’s further upside to the stock, which has surged 40% over the past month.

The broker thinks management’s bullishFY19 guidance is still too conservative given that its key rival has collapsed. This gives Baby Bunting a market dominance it never had before, and with that, management will have a stronger bargaining position with suppliers.

Citigroup is urging investors to buy the stock and has a price target of $2.71 per share.

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Motley Fool contributor Brendon Lau owns shares of Baby Bunting. 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 Scott Phillips.

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