Michael Kors, Tiffany & Co. are bargain retail stocks, analyst says

Key Points
  • The retail sector has not been hit as hard as some other sectors during recent sell-offs, says Nomura Instinet analyst Simeon Siegel.
  • Other stocks, such as Under Armour and Fossil, he says, have been crowded out.
  • Kors, he says, has done better than expected, while Tiffany has a lot of room to grow.
Analyst: Where to find bargains in retail

Bargain shoppers should look to retail stocks for their next big gain, said Simeon Siegel, executive director and senior retail analyst at Nomura Instinet.

The sector, he said, has not been hit as hard as some others during recent sell-offs. The greater trend has been a lot of trade unwinds.

"This has been the earnings cycle of the unwind," Siegel told CNBC during "Power Lunch" on Wednesday. "And you think about companies and stocks, hedge funds, mutual funds, that anyone that has been crowded in, those trades have been painful. And there have been a lot of them."

Under Armour and Fossil have been crowded out, he said, with so many people trying to make the same bet on them.

"When everyone makes the same bet and there's a heavily shorted stock, there's a rush to cover," Siegel said. "When there's a lot of the same bet the trade unwind is more powerful."

On the analyst's buy list is Michael Kors, which he said is "too cheap to ignore," and Tiffany & Co.

Kors, Siegel said, is a good example of a company putting plans in place and "getting healthier" as a result.

"I would argue that Michael Kors was actually better than expected," he said. "The number they put out is better than the number people expected in two years." The handbag and clothing company, Siegel said, improved its handbag backdrop and shrank to grow by decreasing inventory.

Another hot pick is Tiffany & Co. While the stock is not cheap — priced at more than $100 a share — Siegel said the luxury jewelry and specialty retailer has strong brand equity and a lot of room to grow under its new management. Last summer Alessandro Bogliolo was appointed the new CEO.

"When all the dust clears, you want a company that people want to own, that they recognize," he said. "That's Tiffany."