Analyst Stays Wildly Bullish on a Red-Hot Retail Sector: 4 Stocks to Buy

Print Email

Usually, investors pondering what’s hot and what’s not always tend to lean on the hot technology companies, especially the internet-related stocks, whether they be social media or cloud computing oriented. The fact of the matter is that one of the hottest sectors going is retail, and with consumer spending expected to continue to grow along with the current strong economy, the sector is expected to stay smoking hot.

Jefferies analyst Randy Konik has been one of the biggest cheerleaders for the sector, and with good reason. The future looks bright, and for apparel retailers, he makes the case that for all of its retail clout, Amazon, which continues taking share in commoditized goods, is not in the fashion apparel arena. In fact, he says that ever since the fall of 2017, the mention of Amazon by companies as a threat has dried up.

When noting the very positive sector story, the report said:

We remain very bullish on Retail as evidence continues to mount that consumers are the strongest they have been since 1999, company margins are tracking higher, capex needs are lower, free-cash-flow is accelerating and stock prices look cheap. The sea of red on Macy’s results presents a major buying opportunity for the group.

The Jefferies team has four favorite companies for investors to consider now, all are rated Buy.

Gap

This top retailer could be poised to benefit from the extra consumer spending. Gap Inc. (NYSE: GPS) sells private label merchandise through three main retail concepts: The Gap, Old Navy and Banana Republic, along with smaller growth vehicles Athleta and Intermix. The company also sells its products through its company websites. Most of its international stores are Gap stores, concentrated in Western Europe (France, United Kingdom), Japan, China and Canada. The company has over 3,500 stores worldwide.

The company announced this summer that Neil Fiske would take over the role of president and chief executive of its Gap brand. Fiske previously had been chief executive of Billabong, Eddie Bauer and Bath and Body Works. He will permanently replace Jeff Kerwin, who left the company in February.

Gap shareholders are paid a solid 3.0% dividend. The Jefferies price target on the stock is $50, and the Wall Street consensus target is much lower at $32.77. The shares closed Tuesday’s trading at $32.31.

Michael Kors

This top retailer looks to be breaking through a multiple top chart formation. Michael Kors Holdings Ltd. (NYSE: KORS) is an accessible luxury lifestyle brand led by an experienced management team and a famous designer with a presence in over 85 countries. The company offers two primary collections: The Michael Kors luxury collection and the MICHAEL Michael Kors accessible luxury collection.

The company’s sales inflection remains choppy and sustained improvement is needed to drive the multiple higher. However, across Wall Street the estimates for fiscal 2019 are being raised, largely due to better comparison estimates. The Jefferies team cites the company’s great and recognizable brand and the potential for margins to move up, and they think flat out the stock is cheap.

Jefferies has a price target of $93, which compares with the posted consensus target of $77.19. The shares closed trading at $75.41 on Tuesday.