Consumer Discretionary was one of the hottest sectors in 2013, returning over 40%. 2014 has not been the same story for the sector, especially for retail. Brutally cold weather and a continued shift to online sales have hurt a large swath of retail stocks.
Like everything else in the market, eventually sentiment will reverse on the sector and provide some more favorable tailwinds. I notice this week in Barrons that two prominent retailers made the top 20 stocks with insider buying in the last reported week.
Both primarily service the apparel market, have turnaround potential and sell at reasonable valuations.
L Brands, Inc. (NYSE:LB) operates as a specialty retailer of women's intimate and other apparel, beauty and personal care products, and accessories. It offers apparel, lingerie, fragrances, cosmetics, shower gels, lotions, soaps, sanitizers, and accessories under the Victoria's Secret, Victoria's Secret Pink, Bath & Body Works and other brand names.
The stock is down almost $10 from its highs late last year to ~$57 a share. Unlike a myriad of retailers, Limited Brands is still seeing increases in same store sales despite the horrid winter across most of the nation this season. Same store sales increased 9% in January and 2% in February. Victoria's Secret is doing particularly well.
A director purchased over $500K in stock on the last day of February. It was the first insider buy in nearly a year. The company consistently beats quarterly earnings estimates by a couple of pennies a share. The stock pays a 2.4% dividend yield and the company has some of the strongest brands in retail. The shares trade in line with the overall market multiple.
Abercrombie & Fitch Co (NYSE:ANF) operates as a specialty retailer of casual apparel for men, women, and kids. It operates through three segments: U.S. Stores, International Stores, and Direct-to-Consumer. It is primarily a retailer to teens whose category has been under pressure recently.
One of the worst performing parts of retail outside of J.C. Penney (NYSE:JCP), Sears Holdings (NASDAQ:SHLD) and RadioShack (NYSE:RSH) has been teen retailing which has brought down the stocks of brethren Aeropostale (NYSE:ARO) and American Eagle (NYSE:AEO). ANF is down 30% from highs hit early last summer.
A director bought almost $400K in shares in late February. This follows a ~$440K buy by a different director in late January. The company has a standout balance sheet with over $400mm in net cash on the books. This equates to ~15% of the company's market capitalization.
The stock yields almost two percent (1.9%) and has a five year projected PEG of under 1 (.97). Credit Suisse upgraded the shares to "Outperform" last week. It also placed a $52 a share price target on this ~$41 stock. Credit Suisse noted Abercrombie & Fitch "is finally addressing structural changes in the teen apparel market." The company recently beat top and bottom line estimates on its quarterly report, and is seeing better than 20% growth in online sales.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ANF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.