Are investors in retail shares, like the Jumblies, going to sea in a sieve?
Interest in store stocks has risen apace since early this year, indicating that investors are increasingly confident that the sector is seaworthy. Last week brought another mind-boggling rally. The general retailers’ rise of almost 9 per cent dwarfed that of the All Share index and, since the start of the year, stores have advanced by almost 50 per cent.
Better than expected ONS sales data and impressive results from retailers ranging from top dog Tesco to department store group Debenhams encouraged investors to fill their trolleys with retail shares – and that was despite Chancellor Alistair Darling’s gloomy economic forecasts. There was more good news on Tuesday when the CBI’s retail survey showed a “pause” in sales declines and the best result in more than a year.
So the future’s so bright you have to wear shades? Not quite. Many retailers were left undervalued as investors took flight from the sector last year. The absence of a retail armageddon in the intervening period lifted confidence, especially for cyclical stocks that may emerge early from recession.
But tough times are not over yet for retailers, or their investors. Big-ticket specialists remain becalmed, as evidenced by Tuesday’s figures from Carpetright. It had been one of the beneficiaries of renewed interest in retail stocks, up more than 40 per cent in the past three months, and there was City disappointment at the slump in like-for-likes and margin erosion.
However, that need not sink interest in retailers. One of the reasons Carpetright has been popular is its cyclical nature, but people were buying in for a recovery to come rather than one that was immediately evident. When big-ticket sales take off again it will be a sign that retail is really out of choppy waters.
There remains risk in putting cash into the sector and the challenge facing investors is to identify the most seaworthy vessels for the voyage.