Secure Your Portfolio with 5 Retail Value Picks - Analyst Blog

June retail sales data is out and the picture unveiled is quite disappointing. Data compiled by the Commerce Department revealed that retail sales dropped 0.3% in June to $442 billion – the first drop since February when adverse weather had locked consumers indoors – and missed analysts’ forecast of a 0.2% jump by miles. The dismal results followed a 1% increase in May that too was revised from 1.2% growth originally reported.

Cheap gasoline and a better job picture failed to perk up sales, leaving investors perplexed and their portfolios in the lurch. Moreover, a disappointing back-to-school season sales forecast is compelling investors to revisit their portfolios. According to the National Retail Federation, total spending in the back-to-school and back-to-college season is estimated to touch $68 billion, down approximately 9% from $74.9 billion anticipated last year.

Economists are of the view that weaker-than-expected data could hurt economic recovery and ultimately restrain consumers from spending freely. Undoubtedly, the retailers will be the ones to face the brunt. So are you going to let your portfolio become a victim of such market-driven news? Obviously not!

We suggest that you should secure your portfolio by focusing on stocks that are trading below their inherent value. These are generally undervalued stocks, in spite of having strong fundamentals. These value stocks are generally unappreciated or trading at a bargain price, and could fetch higher returns on market correction.

How to Identify?

Warren Buffet said, “It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” So what are the criteria to identify value stocks? A value stock may have a high dividend yield, low price-to-book ratio, low price-to-earnings ratio or a low price-to-sales ratio. However, it might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the value perspective. To make the task easy, Zacks has designed the new Style Score System.

The attractiveness of a stock as an investment option is confirmed by its Value Style Score of “A” (or “B”). The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of A or B when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential.

5 Value Picks

We suggest investing in Express, Inc. EXPR, a specialty apparel and accessories retailer, with a Value Score of “A” and a Zacks Rank #1. The company possesses a P/E of 15.70x and P/S of 0.72x. Compared to the industry at large, this is pretty favorable as the overall space has an average P/E and P/S of 19.31x and 0.84x, respectively. The company has also been witnessing solid earnings estimate revisions over the past 60 days.

Target Corp. TGT, which operates as a general merchandise retailer, is another solid bet, with a Value Score of “A” and a Zacks Rank #2. The company has a P/E of 18.24x and P/B of 3.79x, which are trading at a discount to the industry average P/E and P/B of 23.88x and 5.09x, respectively. The stock has also been enjoying positive estimate revisions over the past 60 days.

Another Zacks Rank #2 stock that investors may look forward to is Darden Restaurants, Inc. DRI, with a Value Score of “B.” This full-service restaurant operator possesses a P/B of 3.90x and P/S of 1.35x. Compare this to the industry average of 4.54x and 1.82x, respectively, and it will be safe to consider the stock as adequately undervalued versus its peers, at least on the basis of these metrics. The Zacks Consensus Estimate too has trended upward over the past 30 days.

You can also count upon Finish Line Inc. FINL, a specialty retailer of athletic shoes, apparel, and accessories, carrying a Zacks Rank #2 and a Value Score of “A.” The company has a P/E of 15.42x and P/S of 0.66x, which are trading at a discount to the industry average P/E and P/S of 19.31x and 0.84x, respectively. The stock has also been witnessing positive estimate revisions over the past 30 days.

Last but not least is Barnes & Noble, Inc. BKS, with a Zacks Rank #2 and a Value Score of “B.” This books, textbooks, magazines and newspapers retailer possesses a P/B of 1.53x and P/S of 0.30x compared to the industry average of 2.28x and 0.81x, respectively. The Zacks Consensus Estimate too has been portraying an uptrend over the past 60 days.

Bottom Line

Investors can confidently end their search at stocks with a better Zacks Rank status of either #1 or #2, which encompasses its strong fundamentals, promises price movement and highlights analysts’ constructive view on the same via positive estimate revisions. A sturdy portfolio always gives favorable returns.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
DARDEN RESTRNT (DRI): Free Stock Analysis Report
 
TARGET CORP (TGT): Free Stock Analysis Report
 
BARNES & NOBLE (BKS): Free Stock Analysis Report
 
EXPRESS INC (EXPR): Free Stock Analysis Report
 
FINISH LINE-CLA (FINL): Free Stock Analysis Report
 
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