With the International Monetary Fund (IMF) pencilling-in UK growth of just under 2% for 2016, you’d think the UK high street would be ticking along nicely right now.
This is far from the case and in the last six months we’ve seen a raft of profit warnings from UK retail stocks. Many core portfolio holdings have seen their share prices decimated on the back of struggling retail performances.
With key retail stocks trading significant below their highs, is now the time to buy?
Historically cheap
Clothing and interiors retailer Next (LSE: NXT) has been a fund manager favourite over the last five years as consistent earnings increases saw the share price ‘quadruple-bag’ from 2,000p in 2011 to a high of 8,000p late last year.
They say that shares ‘take an escalator up and an elevator down’, and it has been no different with Next, after profit warnings in January and March saw the share price drop a dramatic 38%. So is Next a buy at 5,000p?
Results this week continued to disappoint with high street shop sales down 4.7% and the company lowering its profit guidance for the year.
While Next is starting to look attractive on the basis of a historically cheap P/E ratio of 11.5 and a yield of over 3%, I’ll be sitting on the sidelines for now, waiting for evidence of a turnaround. With the share price still trending down strongly, be wary of trying to catch a falling knife with Next.
Key sporting events ahead
Sports Direct International (LSE: SPD) is another company that has seen its share price hammered.
This is a stock that’s heavily influenced by sentiment, and with a recent profit warning and questionable corporate governance practices coming to light in the media, you would think that sentiment must be pretty close to rock bottom right now.
It can pay to be greedy when others are fearful and with the share price having fallen a huge 60% over the last two years, and the stock now trading on a P/E of just 8.3, Sports Direct is beginning to look interesting for the more risk-tolerant investor.
With Euro 2016 just around the corner and the Brazil Olympics in August, trading could pick up at Sports Direct.
If owner Mike Ashley can stay out of the news and sentiment improves, this is a stock that could definitely perform going forward.
Kitchen sink time?
Marks and Spencer Group (LSE: MKS) reports its final results on May 25 and with its clothing division having struggled for a good few years, I wouldn’t be expecting anything different this time around.
There’s talk that new CEO Steve Rowe might actually ‘kitchen sink’ the results, giving himself a blank page with which he can work his strategy and attempt to turn the clothing business around.
While M&S is appealing to income investors on the back of a 4.5% dividend yield, I’d be cautious about the stock until we get a comprehensive understanding of just what the new CEO’s strategy can deliver.
