I don’t know anyone who is actively looking forward to next weekend’s Black Friday and Cyber Monday retail bonanza, but I know plenty who will get sucked in anyway.
This is an opportunity for retailers to get customers through the door, and wealth platform Interactive Investor has picked out two high street chains that may be worth buying in advance of next weekend’s splurge.
Dixons Carphone
Electrical retailer Dixons Carphone (LSE: DC) could do with some festive magic sprinkled over its share price, with the stock down 23% over the last year, and a thumping 66% over five years, driving it out of the FTSE 250 in May 2017.
Black Friday typically sees shoppers rush into electrical retailers, and the group’s brands in, Currys PC World, Carphone Warehouse and iD World, could reap the benefit. Dixons Carphone also owns electronics chains Elkjøp, Elgiganten and Gigantti in the Nordics, and Kotsovolos in Greece, and they will be joining in the global frenzy.
Most people buy electronics stuff online these days, but Interactive Investor head of markets Richard Hunter says Dixons Carphone has responded by taking “the clever approach of moving slower moving lines of stock online so that it can continue to transform its in-store experience”, and develop services such as the rollout of Gaming Battlegrounds.
Dixons Carphone, whose market cap has shrunk to £1.42bn, is a bargain itself, trading at just 8.5 times forward earnings. It offers a whopping forecast yield of 5.7%, with cover of 2.2, but tread carefully, as some think it is a shocking dividend trap.
I’m wary myself, and concerned to see City analysts predicting a 28% drop in earnings per share in the year to 30 April 2020, although they reckon things will recover the year after, growing 17%. Black Friday may offer a boost, but Dixons still has a long way to go.
Sainsbury’s
Hunter’s other Black Friday tip is FTSE 100 listed supermarket Sainsbury’s (LSE: SBRY), also in need of some festive fairy dust, with the share price down a third over the last year, partly due to the failed tie-up with Asda. At 212p, the Sainsbury share price is a third lower than it was 10 years ago.
Aldi and Lidl continue to seize market share by offering cut-price competition, while low consumer sentiment has also hit sales. However, shoppers are now getting richer in real terms, with inflation falling to 1.5%, but salaries growing 3.9% over the last three months.
CEO Mike Coupe fell short with Asda but his merger with Argos seems to be going reasonably well, and Hunter reckons this is where the Black Friday glory will come from: “Having had some success in 2018, Argos has already started a ‘Crazy Codes’ sale and is promising a bumper announcement in the lead up to Black Friday.”
Again, Sainsbury’s looks cheap trading at just 10.4 times forward earnings, while the forecast yield of 5% is covered eight times. The big danger is that market share just keeps on falling, while earnings are forecast to drop 8% this year and 4% next, so it could continue to struggle.
Black Friday may deliver a one-off boost, but both Dixons and Sainsbury’s need to prove their merit year round.