Citigroup picks the best ASX retail stocks to own for 2021

ASX retail stocks have been one of the surprise winners on the market in 2020, but are they still good bets in the New Year?

Brendon Lau

Brendon’s passion for shares started by accident in 2003 and he has worked in various roles around capital markets ever since as a trader, stock analyst and markets reporter with the Australian Financial Review. Most of his wealth has come from share investing than any other asset class, and that has given him the financial freedom not to work full-time, if he chooses to. Brendon is a medium to long-term investor who aims to hold positions for a year or longer and is focused on fundamental analysis, although he will occasionally use technical indicators to time his entries and exits. Brendon has an MBA from Melbourne Business School and is RG 146 certified. He lives in Melbourne with his wife, three kids and two dogs.

Published December 17, 2020 11:42 am AEDT

ASX retail stocks have been one of the surprise winners on the market in 2020, but are they still good bets in the New Year?

While the S&P/ASX 200 Index (Index:^AXJO) is struggling to reclaim all its lost ground during this COVID‐19-stricken year, the consumer discretionary sector is sitting on gains of over 7%.

Many of the listed players have benefitted from the COVID shutdown at the expense of privately-held retailers.

rising retail asx share price represented by excited shopper holding lots of bags best buy — Image source: Getty Images

ASX retailers' surprising tailwind in 2020

This would have surprised many ASX investors as recessions normally spell bad news for the entire consumer-exposed industry.

However, government cash handouts have given our economy a big and much needed boost. Online retailers and those that sell products aimed at stuck at home consumers have shined.

But as the world regains its footing after the pandemic, some are questioning if these ASX stock outperformers have passed their "best by" dates.

Are ASX retail stocks still worth buying?

This is a fair question as many have hit record highs and are not looking good value. But they can at least enjoy a last $54 billion hoorah.

"After a very difficult year, we expect consumers will treat themselves, their family and friends," said Citigroup.

"Conditions are ripe for a great Christmas for retailers. Households have more cash, demand for home and food items is likely to be strong and inventory positions are lean, leading to good gross margins."

Cashed up consumers make these ASX

The broker noted that households would normally spend $3,700 in December. It looks like a reasonably safe bet that this will happen again.

The average bank balance has increased by $12,500 and credit card debt has reduced by just over $500.

"Online sales growth is tapering off, but overall spending looks strong with a late surge likely next week," added Citi.

"Our strongest feedback is in liquor, electronics and sports."

ASX retail stocks to buy in 2021

While investors may be nervous about momentum carrying through in to 2021, Citi remains bullish on the sector.

This is particularly for retailers in housing and grocery, where industry conditions are more resilient.

The ASX retail stocks that Citi is putting on its shopping list for 2021 include the Woolworths Group Ltd (ASX: WOW) share price and Super Retail Group Ltd (ASX: SUL) share price.

Others that make the cut are the Baby Bunting Group Ltd (ASX: BBN) share price, Bapcor Ltd (ASX: BAP) share price and Harvey Norman Holdings Limited (ASX: HVN) share price.

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