Thursday, July 31st17.2°C
21450
21508

Investors should turn to retail stocks for bargains in 2014, says CIBC

TORONTO - Bargain-hunters looking for value may want to consider investing in consumer stocks this year, as competition in the retail sector continues to intensify amid a lower loonie and more entrants vying for customers in an already crowded market, according to CIBC.

In a note Wednesday, CIBC equity analyst Perry Caicco said that while the bank (TSX:CM) generally recommends investors focus on either "high-growth companies or more traditional companies where management is actively driving value," it sees long-term underlying value in retail and consumer stocks.

"As quarters unfold and as the challenges become apparent, (price/ earnings) multiples are likely to decline," Caicco wrote.

"But underneath it all, certain transition activities will begin to bear fruit and there could be some great bargains again among these stocks."

The note points out that the consumer staples index on the Toronto Stock Exchange has risen 53 per cent in the past two years, while the consumer discretionary index has gone up 67 per cent, mainly due to mergers and acquisitions and a number of successful real estate spinoffs.

Caicco said the arrival of U.S. discounter Target changed the retail landscape in Canada, with other major players like Walmart and grocer Loblaws (TSX:L) expanding and diversifying to stay competitive.

He describes this year as one of "digesting and transition" as many of these companies deal with acquisitions, increase their square footage and shift strategies to attract consumers.

"Retailers are lapping a year of significant square footage growth and several got dented pretty badly. Even the multinationals like Walmart, Target and Lowe's (especially Target) are not happy with their sales results," he said.

Competition will only increase with retailers Nordstrom and Saks set to land in Canada this year, noted Caicco, adding that some companies, like those in the grocery business, as well as Tim Hortons (TSX:THI) and Rona (TSX:RON) might be at risk during any period of transition.

"We expect them (retailers) to be quite aggressive in the hunt for sales this year and everyone will have to respond or see revenues erode," he said.

"This does not necessarily ease in the second half — we believe this battle will continue all year."

This pressure could produce "unstable" earnings, which can result in share prices falling sharply, a trend seen with Loblaw late last year, Empire (TSX:EMP.A), Metro (TSX:MRU), Aimia (TSX:AIM), Rona and Dorel (TSX:DII.B).

But the "slightest stumble" in profits for these retailers could also mean a shopping opportunity for bargain-hungry investors, noted Caicco.

The Canadian Press


Read more Business News

22704


Recent Trending




Today's Market
S&P TSX15524.82+78.271
S&P CDNX1011.10-5.40
DJIA16880.36-31.75
Nasdaq4462.902+20.204
S&P 5001970.07+0.12
CDN Dollar0.9165-0.0006
Gold1310.00+6.70
Oil99.53-0.74
Lumber328.70+6.40
Natural Gas3.73-0.017

 
Okanagan Companies
Pacific Safety0.1850.00
Knighthawk0.01-0.005
QHR Technologies Inc1.22+0.02
Cantex0.085+0.02
Anavex Life Sciences0.26-0.0075
Metalex Ventures0.08-0.005
Russel Metals35.22-0.07
Copper Mountain Mining2.83-0.03
Colorado Resources0.22-0.005
ReliaBrand Inc0.10+0.019
Sunrise Resources Ltd0.03-0.005
Mission Ready Services0.15-0.005

 





FEATURED Property
18870113545 Carrington Rd
1 bedrooms 1 baths
$138,900
more details
image2image2image2
Click here to feature your property
Please wait... loading


Take charge of your debt

Photo: Thinkstock.comWays to reduce your Debt:Make a budget and get budget counselingA basic first step for debt reduction is to prepare a budget and plan your spending. Once you have a budget, you mu...


Geopolitical tensions rattle markets

The Big Picture Geopolitical tensions rattle markets The spectre of rising geopolitical tensions in Ukraine and Gaza cast a shadow over an otherwise positive week in the markets. News that a passenger...


Learn to delegate effectively

Photo: ContributedI have the pleasure of witnessing people delegate tasks quite often. Sometimes with tremendous success and sometimes with disastrous consequences. I have chaired a lot of committees...

_








Member of BC Press Council


22097