Opportunities remain in retail stocks

Despite a new sales low for retailers over Christmas, there is still potential for investors in the sector, analysts say.

The retail sector hit a new low this morning, with figures from the British Retail Consortium (BRC) showing record sales falls in December.

However, retailers that have bucked the trend have seen their share price rise as investors snap up what seem to be undervalued stocks. As an investor in this sector, should you be staying put or selling up?

“I wouldn’t panic but I would be selective,” said Anthony Grech, research analyst for IG Index.

Mr Grech said there is no need to sell all your stocks in the retail sector - but some are a safer bet than others.

“If I had to go with the retail sector I would remain exposed to the big blue chips, like Tesco and Sainsbury’s, because in the long term they are your safest bet. A lot of the smaller retailers have gone into administration.”

Graham Spooner, investment adviser at The Share Centre, also sees potential in Tesco, which reported a sales increase of 2.5 per cent over Christmas.

“Although today’s results show Tesco’s worst sales increase since the early 1990s, Tesco’s figures are in line with expectations and are good news in such a tough retail environment.

“Considering the volatility on the high street at present, we are advising Tesco shareholders to hold.

“Their cheap food and cut-price clothing is likely to attract UK consumers watching their pennies at present. The store’s international sales are up and there is potential for Tesco’s to further expand abroad.”

Hilary Aldridge, co-manager of the F&C UK Growth & Income Fund, said there are still opportunities in retail stocks.

“We still prefer those companies with solid balance sheets and good cash generation. Over the next 18 months we expect to see strong businesses getting stronger,” she said.

Ms Aldridge described clothing retailer Next and furnishings chain Dunelm as long-term winners.