As the markets have raced to record highs since the Brexit vote, some of the leading sectors have been areas of the market usually reserved for times when the macro picture is less than stable. The utilities and consumer staples sectors have had stunning a year so far, while other areas like consumer discretionary have lagged. With interest rates at generational lows though, some top institutional accounts are starting to look at the high dividend-paying stocks in the consumer discretionary sector.
A recent Jefferies report notes how expensive consumer staples had gotten relative to consumer discretionary and suggests that in the past such disparities have led to a reversion, in which discretionary subsequently outperformed staples. The report also made the case that recently some institutional accounts have started to focus on the higher yielding companies in the sector, and three now have solid total return potential.
Abercrombie & Fitch
This top retailer is making the most of the retro fashion rage, and it is also on the Jefferies Franchise Picks stocks list.
Abercrombie & Fitch Co. (NYSE: ANF) is a leading global specialty retailer of high-quality, casual apparel for men, women and kids with an active, youthful lifestyle, under its Abercrombie & Fitch, Abercrombie Kids and Hollister brands. At the end of the fiscal year, the company operated 754 stores in the United States and 178 stores across Canada, Europe, Asia and the Middle East. The company also operates e-commerce websites.
This is one of the top retailers featuring the off-the-shoulder tops that were so big back in the day. According to the analysts, this is one of the biggest trends for spring 2016, and it has been interpreted for nearly every demographic, ranging from teens to young adults. Add in the fact that demand for the retailer’s offerings has improved, with the company’s Hollister brand reporting positive comparable sales, and the overall turnaround potential is huge.
Abercrombie and Fitch has slowly but surely started to rebuild what once was a very dominant brand, and the company has been utilizing its huge user following on Facebook to help drive traffic and product awareness.
Shareholders receive a 4.18% dividend. The stock is rated Buy and the Jefferies price target is $25. The Thomson/First Call consensus target is $23. The shares closed most recently at $19.16.
This top retailer could be poised to benefit from the extra consumer spending. Gap Inc. (NYSE: GPS) is a leading global retailer offering clothing, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. Fiscal year 2015 net sales were $15.8 billion. Gap products are available for purchase in more than 90 countries worldwide through about 3,300 company-operated stores, over 400 franchise stores and e-commerce sites.
Company executives are encouraged by the initial customer response to Gap brand’s spring collection, and they remain focused on improving results across the portfolio.
Gap shareholders receive a 3.95% dividend. The Jefferies price target for the Buy-rated stock is $26, and the consensus target is $29. The stock closed Wednesday at $23.28.
This stock recently bounced off a 52-week low and could be heading higher. Guess? Inc. (NYSE: GES) designs, markets, distributes and licenses one of the world’s leading lifestyle collections of contemporary apparel and accessories for men, women and children that reflect the American lifestyle and European fashion sensibilities. Its apparel is marketed under numerous trademarks.
The company’s lines include full collections of clothing, including jeans, pants, skirts, dresses, shorts, blouses, shirts, jackets, knitwear and intimate apparel. It also selectively grant licenses to manufacture and distribute a broad range of products that complement its apparel lines, including eyewear, watches, handbags, footwear, kids’ and infants’ apparel, outerwear, swimwear, fragrance, jewelry and other fashion accessories.
Shareholders are paid a huge 5.75% dividend. The Jefferies price target is $16 and the stock is rated Hold. The consensus target is $16.50, and shares closed most recently at $15.52.
While it certainly appears that all three of these companies have hit the bottom and turned higher, any slowdown in consumer spending could become a headwind. With that in mind though, value buyers may find them intriguing at current entry points.