Retail companies are major 'value traps' in 2017, analyst warns

Online retailers are the way to go: Magoon
Online retailers are the way to go: Magoon

It's 2017, and retail stocks are "value traps," analyst Christian Magoon told CNBC's "Closing Bell" on Wednesday.

"I think online retailers are the way to go," the chief executive officer of Magoon Capital told CNBC. Magoon predicts a "downward spiral" in traditional brick-and-mortar retailers as the year progresses, and he warns investors not to "catch a falling knife," referring to the likes of Sears or RadioShack.

Some analysts, though, remain more bullish on traditional retail players — such as Kohl's and Foot Locker — despite losses in their share prices of late.

"I'm a value investor, so I buy things when they go on sale," retail analyst John Buckingham told CNBC on Wednesday. He advises investors to be selective with retail companies today, picking those that have great balance sheets and big dividend yields. "There is opportunity out there [in retail], for those who can take a long-term view of things."

In addition to recommending Kohl's and Foot Locker to investors for their dividend yields, Buckingham said he favors teen apparel maker American Eagle Outfitters and cookware retailer Williams Sonoma given their strong brands and balance sheets.

"This is a recipe for success," retail bull Buckingham told CNBC, referring to the four above-mentioned stocks.

Magoon, however, is convinced there's little hope left for traditional players in the retail industry, citing a spike in bankruptcies and more brands selling off assets to make up for lost sales in recent months.

"The whole retail space is changing," Magoon reiterated. "Online retail is the way to play."

The consumers discretionary sector of the S&P 500, which contains companies such as Gap, Macy's and Staples, is down about 1 percent for the month but is up more than 5 percent for the year, slightly more than the S&P 500's 4.9 percent total return year to date.