Jefferies Says Amazon Retail Doesn’t Work: Buy These 4 Stocks Instead

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For years as Amazon.com Inc. (NASDAQ: AMZN) grew, skeptics on Wall Street said brick-and-mortar stores were doomed. The easy convenience of looking online and ordering was too dominant, and the end was near. While there is no question that Amazon dominates e-commerce, the reality is, especially with apparel and footwear, that consumers often want to try on items before purchasing to see if they fit, the colors and style are right and more. That’s hard to do on the internet.

In a new research report, Jefferies analysts feel that owning solid retail names is probably the best way for investors to be in the space. The report said this:

Amazon just announced the closure of all 87 pop-up stores. The company announced they intend to close their pop-up stores, and instead transition to focus on their bookstores and 4-star shops. We do not believe these will be successful, as the company lacks expertise in physical retail fulfillment.

In addition, with the consumer sentiment staying strong as employment and earnings have headed higher, the prospects for the sector look solid. The analysts also noted this:

The consumer is very strong and is not being price sensitive. Retail fundamentals are solid (even with bad weather impacting the first quarter); outlook for industry margins is still up from here while cash flows are strong and getting stronger. The group is cheap, under-owned, and the threat posed by Amazon is overemphasized, in our view.

The analysts suggest dumping food and overpriced consumer staples stocks and buying retail. We screened the Jefferies universe and found four companies that look like solid picks now. All are rated Buy.

Gap

This top retailer could be poised to benefit from continued extra consumer spending, and it is the top pick at Jefferies. 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 recent announcement to the spin-off the Old Navy brand was greeted well by Wall Street. The remaining company, which still needs a name, will consist of the namesake Gap brand, Athleta and Banana Republic, plus a couple of lesser known brands. It will have annual revenues of about $9 billion, compared to Old Navy’s $8 billion, the company stated.

Gap shareholders are paid a solid 3.63% dividend. The Jefferies price target for the shares is $50, though the Wall Street consensus target is much lower at $29.50 The stock closed trading on Thursday at $26.72 a share.

Kohl’s

This top retailer recently posted outstanding quarterly results. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States that offer private label, exclusive and national brand apparel, footwear, accessories, beauty and home products to children, men and women customers. The company also sells its products online at Kohls.com and through mobile devices.