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Top broker names best small cap retailers to buy for 2020

The retails landscape looks challenging but there’s a handful of small cap ASX retailers that should be on your shopping list as we head into Christmas, according to Citigroup.

The broker reviewed the Black Friday sales event and found that four stocks have made a positive start to the all-important festive trading period. It is recommending investors buy these stocks.

All of these emerging retailers recorded online traffic growth from Black Friday to Cyber Monday with a pull forward of December sales into November. This clears inventory heading into Christmas and the broker believes sales during the holiday season will ramp up each year.

Bling bling

The retailer that’s seen the strongest growth (albeit off a small base) is costume jewellery company Lovisa Holdings Ltd (ASX: LOV).

“We observed the largest increase (+149%) in online page views during the 2019 Black Friday – Cyber Monday week at Lovisa,” said Citi.

“At this point we view online as being more helpful in landlord negotiations opposed to a material contributor towards sales growth.

“Lovisa continues to have the best long-term growth story in the Australian small cap retail sector, underpinned by its global rollout.”

Citi’s price target on Lovisa is $14.10 per share.

A real gem

Another retailer that say a big increase in online traffic is Michael Hill International Ltd (ASX: MHJ). Online views during the recent sales event was 53% and there’s a strong correlation between online sales and page views.

“Further, sustained improvement in Michael Hill Australia’s online traffic since July 2019 indicates turnaround strategies continue to gain momentum and the business has been stabilised,” said Citi.

“Michael Hill is one of our top picks in the small cap retail sector.”

The broker’s price target on the stock is $0.81 per share.

Made for running

Another key pick in the sector is the Accent Group Ltd (ASX: AX1) share price. The footwear retailer had more than 1 million page views across the websites for the brands it carries, including The Athlete’s Foot and Skechers.

“We see Accent as well placed to drive digital sales growth over the medium term given opportunities in new platforms and investments to scale infrastructure,” said Citi, which slapped a $1.67 price target on the stock.

Still a little darling

Baby products retailer Baby Bunting Group Ltd (ASX: BBN) recorded an 8% increase in online traffic to its site over the period, but Citi noted that this is a big drop from last year’s 48% increase.

This could signal nearer term headwinds for the retailer and trigger a de-rating in the stock, which is trading at around a 17 times forecast FY20 price-earnings (P/E) multiple. That’s a little high for the sector and could explain the stock’s 2.9% drop in late afternoon trade to $3.32.

But Citi believes Baby Buntings is still well placed to benefit from easing competitive pressure and new growth opportunities. The broker’s price target on the stock is $3.94 a share.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. 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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