With consumer spending under pressure from rising living costs, the retail sector has taken a tumble in 2022.
For example, the S&P/ASX 200 Consumer Discretionary index has lost over 21% of its value. This compares unfavourably to the benchmark ASX 200 index, which is down 12% year to date.
While this is disappointing, the team at Goldman Sachs sees this as a buying opportunity for a couple of ASX 200 retail shares.
Which ASX 200 retail shares are in the buy zone?
According to a recent note, Goldman Sachs has picked out Breville Group Ltd (ASX: BRG) and Harvey Norman Holdings Limited (ASX: HVN) as shares to buy.
In respect to Breville, the broker has a buy rating and $23.40 price target on the appliance manufacturer's shares. It expects the company's strong growth to continue thanks to its three-pronged growth strategy.
Goldman commented:
The stock is -39.0% YTD vs All Ords -12.8%, as investors appear concerned that it was a key beneficiary during COVID in-home consumption and that reopening could result in weakness from consumption. However, we believe that the portioned and R&G coffee market will experience more secular growth than the market has factored in with continued upgrading from soluble coffee and added penetration of out-of-home (e.g. hotels, workplace).
We see BRG as having a three-pronged growth strategy: 1) building on secular growth of the portioned and roast & ground (R&G) coffee market and achieving market share gains; 2) new market entry; and 3) options – ecosystem revenue streams.
Cheap shares and big dividend
As for Harvey Norman, Goldman Sachs has a buy rating and $4.50 price target on the retail giant's shares.
It highlights that the company's shares are trading at an attractive level with a generous yield. In addition, the broker sees scope for management to boost its growth with acquisitions.
The broker explained:
We expect the attractive valuation and high dividend yield will attract investors back into the stock. Another potential catalyst is how the company leverages its balance sheet for growth or shareholder returns. The company's ND/EBITDA (pre-lease) is at 0.38x in FY23e. If we apply the historical peak of ~1.9x (pre-lease), we calculate that it has debt headroom of ~A$1.2bn for potential bolt-on acquisitions or expanded capex for growth investment.
