The retail sector was struggling even before Covid-19 struck, and the pandemic means it’s set for a disastrous year, right? Wrong. According to the Office for National Statistics (ONS), retail sales in July were back above their pre-lockdown levels. With the FTSE 100 still in a 20% slump in 2020, that means there must be some bargain stocks to be had, right? I say yes.
Retail volumes rose 3.6% between June and July, which might not seem too exciting on first look. After all, we’re really just opening up after our very strict lockdown. But July sales were actually higher than February’s, and I think August is likely to continue the trend.
The first lesson for me is that the past six months has been a very short time in investing, even if it can feel like it’s sucked far more time than that out of our lives. And as we’ve been trying to reassure investors all along at The Motley Fool, even a FTSE 100 dip as deep as this year’s will disappear into the charts in the fullness of time.
If we’d had a complete blank in statistics between March and June, the ONS retail sales chart for the past five years would just look like a steady upwards line. There’d be no way to guess what a calamity actually happened. The FTSE 100 chart doesn’t look quite like that yet. But once it’s fully recovered, I’m sure it will — just like every other stock market crash we’ve ever had. In the meantime, we can look for buys to make the most of the time lag.
FTSE 100 retailers
So what would I pick? I’ve always been a fan of Associated British Foods. Primark is the jewel in the crown, and checking out Primark figures is the first thing I always do whenever we get results from ABF. Primark has been hit in the downturn, but we have the company’s food business and its sugar production as defensive back-ups. The ABF share price is down 20% in 2020, and I rate it a top FTSE 100 buy.
The clothing business is a tough one, and we’ve seen so many failures over the years. They range from fad fashion brands that burn brightly and then dim to nothing, to high street fixtures like Marks & Spencer. M&S has been struggling to sell clothing for decades. But directly opposite my local branch lies Next, and that’s an entirely different story. Next just seems to manage to get it right, year after year. And it’s doing a great job of selling online too, which is a must these days. The Next price dropped further than the FTSE 100 in the early crash. But it’s now doing better than the index, with a year-to-date drop of 11%. Next is a buy for me.
One to watch
I’m in two minds about Frasers Group, as Mike Ashley has rebranded the former Sports Direct International. I’m not keen on the firm’s debt situation, but I do like its very positive outlook. And while the share price has pulled back from the worst of its lockdown slump, it still looks cheap. I’m starting to think it could be time to buy, but I’ll watch and wait for a little longer.