The prospect of a COVID‐19 vaccine is fuelling the market rally but it's also set to create a new set of winners and losers in the ASX retail sector.
We are already starting to see a rotation unfolding even as the S&P/ASX 200 Index (Index:^AXJO) jumped a further 1.7% today. This takes its gains to around 4.4% since the start of the week.
But ASX tech stocks that outperformed through the pandemic have been sold in favour of ASX value stocks since news of Pfizer's successful trials of its vaccine.
COVID the biggest threat to ASX retailers?
Brokers believe we will see a similar rotation among retailers as purchasing behaviour is expected to change in a new COVID-normal world.
Morgans made a swath of downgrades across the sector as it warned that an effective COVID vaccine poses the biggest threat to these ASX stocks.
It's hard to reconcile the idea of a much-anticipated vaccine with bad news. But the broker is convinced it will hurt sentiment and valuation of retail stocks.
As good as it gets
"Whichever way you look at it, most retailers have been a major beneficiary of the redirection of spending during COVID and could now become a funding source," said Morgans.
"We continue to think Christmas will be a boomer this year and 1H results will show extraordinary growth with strong opex leverage on buoyant top-line trading.
"However, as we saw with AGM update reactions, the market will likely look through this strength (one step closer to the peak; risk to FY22 earnings) – a potential vaccine makes this reaction even more likely in our view."
ASX retail stocks getting the downgrade chop
This prompted the broker to downgrade its recommendation to "hold" from "add" for the Accent Group Ltd (ASX: AX1) share price and the Baby Bunting Group Ltd (ASX: BBN) share price,
Others that got a similar chop include the Beacon Lighting Group Ltd (ASX: BLX) share price, MotorCycle Holdings Ltd (ASX: MTO) share price and Super Retail Group Ltd (ASX: SUL) share price.
The analysts at Macquarie Group Ltd (ASX: MQG) have also echoed similar concerns about changing consumer behaviour if a vaccine is found.
The broker downgraded the Wesfarmers Ltd (ASX: WES) share price and JB Hi-Fi Limited (ASX: JBH) share price to "neutral" from "outperform".
It chopped the Domino's Pizza Enterprises Ltd. (ASX: DMP) share price to underperform in the same breath.
ASX retail stocks to buy now
One of Macquarie's preferred buys among consumer-facing stocks is the Woolworths Group Ltd (ASX: WOW) share price. Consumers are still likely to eat more at home and the broker believes Woolies offers the best on-line experience.
On the other hand, Morgan's key picks in the sector are the Eagers Automotive Ltd (ASX: APE) share price, the Breville Group Ltd (ASX: BRG) share price, Collins Foods Ltd (ASX: CKF) share price and Lovisa Holdings Ltd (ASX: LOV) share price.
