This year has not be kind to retail stocks
In fact, the XRT, or the ETF that tracks retail stocks, is one of the worst performing sectors this year, down 7 percent. And among the worst performers in the group? Teen retail.
So why is retail and consumer discretionary so weak and where should you invest your money?
According to Eric Beder, managing director of equity research at Brean Capital, it’s all about the millennials.
“The entire teen segment, which is driven by basics and logos, is being turned on its head,” said Beder. “The key winners we have had in prior years like an Abercrombie or American Eagle just aren’t working right now. Look for the players that zigged while everyone else zagged. And the best example of this is Urban Outfitters.”
Teen retailers Urban Outfitters and American Eagle have lost a respective 13 and 41 percent in the last year.
Beder has three simple tips for those looking to navigate teenagers’ fickle tastes: invest in winning brands, invest in beaten down names due for a turn and invest in rational players buying others.
One company Beder sees as a “safe” investment is Oxford Industries, the owner of brands like Tommy Bahama, Ben Sherman and Lilly Pulitzer.
“We like this story because consumers still care about brands. But what they care about is what they can notice opposed to the logo. They want to have a lifestyle,” said Beder. “Those brands that mean something are very strong.
We’ve seen this throughout the industry, people with strong brands continue to do well even in a tough spending environment.”
Beder goes on to recommend Guess and Signet Jewelers as additional companies to invest in.
Catch the full discussion with Beder above.
Brean Capital has a “Buy” rating on Guess (GES) of $37 per share
Brean Capital has a “Buy” rating on Oxford Industries (OXM) of $87 per share
Brean Capital has a “Buy” rating on Signet Jewelers (SIG) of $115 per share
Some companies that Brean Capital follows are emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies.
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