Retail stocks have been an out of favor sector with the market this year. Consumer spending on goods has dropped. And there’s been a rise in retail theft leading to higher levels of inventory loss, known in the industry as shrinkage.
However, some companies could fare better than others going forward, and those that can improve on earnings and keep inventory low could give investors a great return in the months ahead.
Electronics retailer Best Buy (BBY) has fared poorly this year, even with a beat in the most recent quarterly earnings. Shares remain flat amid a strong year-to-date market rally. Seasonally, retailers tend to perform more poorly over the summer going into the year-end holiday season.
At the moment, shares trade at 12 times earnings, and go for less than 0.4 times their price to sales. Plus, the flat price has pushed up the stock’s dividend to 5.1 percent.
Action to take: Investors may like shares as a contrarian buy here, ahead of the seasonal push higher in retail stocks. They’ll be well paid to wait with the stock’s hefty dividend.
For traders, shares are near the lower end of their 52-week range and look oversold in terms of their relative strength. The December $80 calls, last going for about $2.50, could see mid-to-high double-digit gains on a jump higher in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.