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Retail Stocks: Values After the Coronavirus Sell-Off?

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  • (0:30) - Has the Market Downturn Created Opportunities In Retail?
  • (5:20) - Tracey's Top Stock Picks
  • (23:00) - Episode Roundup: ULTA, LULU, WSM, HD, OXM

Welcome to Episode #184 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

With the stock market sell-off, there are more value stocks.

Other than the leisure and hospitality and airline industries, the retailers are among the hardest hit by the coronavirus as many have closed all of their brick and mortar stores in the United States, resulting in the furloughing of many employees.

Advertising and other costs are being cut, along with dividends and share buybacks.

Many retailers have already tapped their revolving lines of credit so that they would have cash on hand.

The shares have plunged in the coronavirus sell-off.

Should Investors Dip into Some of the Retail Stocks?

With the recent sell-off, many investors are wondering if there’s value in the shares.

Do they have low P/Es now?

Should value investors be diving into some of them?

The retail group encompasses many different types of retailers including the department stores, the supermarkets, the big box retailers, the home and furniture stores, discounters, auto retailers, shoes, apparel and electronics.

This podcast focused on the retailers who aren’t selling groceries, which is booming during the crisis.

Buy Strength

If you’re going to dive in, buy the retailers who were crushing it before the coronavirus disrupted the global economy.

Buy the best.

Prior to the virus, consumer confidence was high. Unemployment was low. The stock market was at all-time highs over the holiday season.

Good retailers were putting up great numbers.

Bad retailers were putting up bad numbers.

You want to buy the strongest companies you can during the crisis.

And if you can get them on sale, even better.

5 Retailers for Value Investors to Put on Their Short List

1.       Lululemon (LULU - Free Report) recently reported fourth quarter results, which is the holiday quarter, and had the best comparable sales results of anyone in retail: up 20%. The company has brand momentum. And it has experience dealing with the virus, as it had stores shut down in China. All of them have now re-opened. Shares have fallen 21% year-to-date. Is it cheap enough to take a look?

2.       Ulta Beauty (ULTA - Free Report) has been one of the top retailers for several years as it operates one of the best loyalty programs in retail. While its stores are closed, it has a strong online business. Shares are down 35% year-to-date. Is Ulta a value stock?

3.       Williams-Sonoma (WSM - Free Report) has the hottest brand in furniture: West Elm. West Elm posted a 13.9% comparable sales number in the fourth quarter while the entire company saw 7.6%. On its Q4 conference call, it said that online sales had surged in the first week of the state shutdowns. The company is still paying its dividend, currently yielding 4.5%. After shares plunged 47%, is it a value?

4.       Oxford Industries (OXM - Free Report) has two hot brands: Lily Pulitzer and Tommy Bahama. In its recent fourth quarter earnings report, it did announce a cut to its dividend to $0.25 from $0.37. But that is still yielding 2.7% as the shares have plunged 55% year-to-date. Fiscal 2020 earnings estimates have been slashed, but is the valuation still attractive?

5.       Home Depot (HD - Free Report) has been one of the top retailers for several years as people continue to invest in their homes through home renovation. Will this increase after we are all stuck in our homes for weeks? Shares have fallen 18% year-to-date. Is this an opportunity to get one of the best retailers on the cheap?

What about those retailers whose stock has plunged and is now under $5?

Should investors consider those too?

Find out the answer to these questions and more on this week’s podcast.

 [In full disclosure, Tracey owns ULTA, LULU, and WSM in her own personal portfolio.]

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