The recent surge in ASX retailers like the JB Hi-Fi Limited (ASX: JBH) share price may be running out of puff. A leading broker is recommending investors rotate to better value stocks.
This advice comes at a time of renewed worries about a second wave of COVID-19 infections as large parts of Victoria re-enters a lockdown.
While several ASX retail stocks benefitted from the first nationwide shutdown to contain the pandemic, they may not get a repeat boost this time round.
ASX retailers at risk of a de-rating
In fact, the analysts at Macquarie Group Ltd (ASX: MQG) thinks the re-rating that lifted the sector is at risk of deflating.
This is because government support programs like JobKeeper have provided a temporary shot in the arm to consumers, limited the spike in unemployment and given many low wage earners a pay rise even.
"We believe these short-term catalysts are likely to be unwound in next couple of months, the early wins from holding these names are likely to have already occurred," said Macquarie.
COVID-19 ASX winners losing their crown in second lockdown
Consumers that were forced to stay and work from home have rushed to buy home office supplies. Many have also started on DIY projects around the home to occupy and distract themselves.
This provided the Wesfarmers Ltd (ASX: WES) share price a big boost as group benefitted through its Bunnings and Officeworks stores.
The JBH share price was also another big winner as sales of computers and IT accessories took off, while the demand for home delivered food made the Domino's Pizza Enterprises Ltd. (ASX: DMP) share price a tasty treat for investors.
While these retailers will continue to benefit from the ongoing COVID-19 disruption, they probably won't get the same uplift the second time round.
Earnings forecasts at risk
"As the world and consumer settings return to a more normal setting over the next couple of years, so too will spending patterns," said Macquarie.
"This suggests that using FY20 or FY21 as a base year for calculating sustainable earnings and valuation is likely to lead to disappointment."
For this reason, Macquarie downgraded its recommendation on Wesfarmers, JB Hi-Fi and Domino's to "neutral" from "outperform" even though it didn't change its earnings forecasts for the trio.
ASX stocks to buy on second wave fears
The broker now favours consumer staple stocks, namely the major supermarkets. These include the Woolworths Group Ltd (ASX: WOW) share price and Coles Group Ltd (ASX: COL) share price.
Both these stocks outperformed the S&P/ASX 200 Index (Index:^AXJO) today as panic buying of groceries due to the new Victorian lockdown will provide a lift to sales that analysts weren't counting.
Macquarie is recommending both supermarket stocks as "outperform".
