The retail sector had a rough end to 2018, but after getting so beat down, the sector may provide significant upside to investors from here.
Analyst Randall Korik noted that a still strong consumer coupled with a potentially brighter macro environment ahead provides a strong rationale to make retail investment a solid resolution for 2019.
The AAP team initiated a position in Five Below on Decemeber, 14th 2018 at a price of 103.26 per share and have since lowered their cost basis below $100.
"[Discount retail] continues to be an industry sweet-spot as consumers increasingly prioritize value," Korik explained, citing Five Below as one of the best picks in the sub-sector.
His analysis echoes that of Amanda Agati, co-chief investment strategist at PNC Financial Services Group, who said that 2019 could be a big year for low-price retailers.
She explained that value stocks and discount retailers could be set up for a strong 2019 in particular, while their more luxury-minded peers encounter problems.
"We like FIVE's nimble, opportunistic business model, and believe the company has a long pathway to growth, from under 700 units to 2,500+ over the long term," the Jefferies team explained. "We expect expanded marketing initiatives to help grow already strong brand awareness and new store productivity."
The Action Alerts Plus team provided an even more detailed analysis in a recent report initiating a larger position in FIVE.
"FIVE represents one of the best growth stories in retail, driven by its regional to national expansion plans," the team explained recently. "These new stores are typically profitable right off the bat too, as their average return on investment trends at about 150% for each store with a payback period of less than a year. All in, we believe this is a unique growth story in retail that the market must pay up even more for."
With many price targets between $125-150, there is significant upside for investors at current prices.
Watch the video above to see what Jim Cramer and AAP Senior Portfolio Manager, Jeff Marks had to say about Five Below in last month's Members Only Call.
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