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5 Retail Stock Picks From 2 Bullish Analysts

A handful of retail stores, including Walmart , reported upbeat earnings news on Thursday. Is the sector finally thawing? Retail analysts Kimberly Greenberger of Citigroup and Jeff Klinefelter of Piper Jaffray discussed their insights.

“We think [consumers] are just starting to open their wallets,” Klinefelter told CNBC. “There’s still very much a trade cycle going on.” (Read below for his stock picks.)

Klinefelter said consumers are getting more units for less dollars, resulting in an inflection point when sales results come out lower than expectations — with higher margins.

“It should be a very healthy sign to investors that profitability is going to accelerate,” he said.

In the meantime, Greenberger said she expects the retail sector to trade sideways for the next four to eight weeks.

“But overall, what we’re talking about is stocks that might look expensive on a P/E basis,” she said.

“Remember, the ‘E’ is depressed—operating margin has been under pressure now for two years and we think as you see earnings recovery, that valuation will not hold the stocks back.”

Greenberger said although stores aren’t offering deep discounts like last year, some consumers are still willing to shop.

“So we’re seeing a less severe discount and that means margin recovery going forward,” she said.

Greenberger Likes:

American Eagle Outfitters

Urban Outfitters

Klinefelter Likes:

Kohl’s

Ross Stores

American Eagle Outfitters

Abercrombie & Fitch

Disclosure:

Greenberger’s firm Citigroup currently has, or has had within the past 12 months, AEO as its client. A suit filed by American Eagle against Citi is currently pending in federal court.

Klinefelter’s firm Piper Jaffray makes a market in Kohl’s and Ross Stores.

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