Are There Deals to Be Had in Retail Stocks?

Includes: ANN, BKE, DDS
by: Wyatt Investment Research

Recession be damned, Americans appear determined to spend what they can this holiday season.

MarketWatch reports that the National Retail Federation survey indicated that the number of shoppers jumped 8.7 percent over the four day holiday weekend, and that average spending rose 6.4 percent.

Hopefully the rise in spending was done responsibly. The recession should have taught many consumers the downfall of too much leverage. If they have learned their lesson they won’t foolishly run up debt in the countdown to Hanukkah, Christmas or Kwanza.

Now with the Black Friday kickoff to the shopping season in the books, retailers have a better idea of what to expect for the rest of the year.

And it appears that a little luxury is on many shopping lists. According to the MasterCard Advisors’ SpendingPulse survey, in the first 18 days of November luxury goods sales were up 6.7 percent and jewelry spending increased 8.1 percent over the same period last year.

So far I haven’t seen any jewelry stocks that truly interest me, although I still like this gold grading company that pays an 8.9 percent dividend.

The wealthy probably fared better than many others in this latest recession, so I’ve been looking at where they shop to see if I can find small cap stock bargains for investors.

A stock that should interest value investors is Dillard's (NYSE: DDS), a regional department store chain which shot up 53 percent in the past three months. Dillard's pays a .5 percent dividend, and while projected sales growth is pretty flat, earnings are growing. I think the company still has room to grow, as this Forbes blog points out. Dillard’s has a forward P/E of 14, indicating that shares are more reasonably priced as compared to competitors.

Another stock I’m looking at is Ann Taylor Stores (NYSE: ANN), which is predicting its fourth-quarter sales will approach $500 million. The women’s apparel retailer also expects same-store sales for the holiday quarter to grow between 5 and 9 percent. The stock, trading in the mid-$20s, has a forward P/E of 17. Friedman, Billings & Ramsey analysts just bumped up their 12-month price target by $3, to $30 indicating that the stock has over 10 percent upside.

Back on October 8, I wrote about Buckle (NYSE: BKE) in Shopping for a Bargain in Premium Apparel. The company sells premium denim, mostly to the teen market. The stock is up nearly 25 percent since my article and with a forward P/E of 14 still looks like a bargain.

I predicted that the company appeared to be in a position to pay a special dividend like it did in 2009. That prediction was accurate, and in fact Buckle will pay a $2.50 per share special dividend on December 21. It’s a well-run company that’s still an attractive play.