Why Dixons Carphone plc, Marks & Spencer plc And Next plc Should Have A Good New Year

How strong is retail going into 2016? We’re a nation that loves shopping, and I think we always will. It seems the tills have been ringing merrily this Christmas and I don’t think I’ve seen the shops busier than this Boxing Day. Yet a lot of those sales have been made at the expense of margins as full-price selling proved tough ahead of Christmas and discounts have hit a high post-Christmas. But even in worrying times for the retail sector, here are three retailers I think should have a great New Year.

Power player

Why, oh why is contrarian investing so difficult? In the depths of the Great Recession, the High Street was in tatters and retailers’ shares were plumbing the depths. But there were bargains to be had.

I correctly called the bottom for Dixons as it was then known, and predicted it would have a bright future. I even dared to suggest that this company could be the Next (LSE: NXT) of consumer electricals.

Four years on, I think I’ve been proved right. Dixons Carphone (LSE: DC) as it’s known today, has gone from strength to strength. If I’d had the courage of my convictions, I would have more than doubled my money, but I sold out too soon.

This company is now dominating a sector that has seen the demise of Comet and Phones4U. And it’s expected to grow further as the consumer boom continues to build momentum.

A 2016 P/E ratio forecast to be 17.59, with a dividend yield of 1.96%, looks fairly priced for this growing business. It’s not too late to jump on board.

Food for thought

Marks & Spencer (LSE: MKS) also suffered after the Credit Crunch, but since then its shares have been trending upwards. The rather odd thing is that this firm has been doing best in the food sector, which happens to be the most fiercely fought retail space in the country. Why is it so successful here? Well, just visit a Marks & Spencer Simply Food and sample the products and you’ll see why. It’s arguably the best food store in the country, and maybe even the world.

I’ve always argued that M&S can do better in terms of its clothing ranges, but even here it’s improving. And it’s taking the formula around the world, leveraging the strength of the Marks & Spencer brand. Many store openings are now outside of its core domestic market.

Yet the company is very reasonably priced with a forecast P/E ratio of 12.80, and a tempting dividend yield of 4.22%. This is a clear buy.

Fabulous furnishings

Next has been the casebook shopping success story of recent years. A once barely-profitable chain is now a world-leading business. Yet, although momentum has driven the share price to all-time highs, I think there’s more to come from this firm.

The quality of its products is strong and I’m a particular fan of its furniture ranges. I’ve rarely seen a better-laid-out store than my local Next Home. But, as with Marks & Spencer, there’s perhaps little more room to grow in the UK.

So Next has also been expanding rapidly abroad. And with such a good product offer, I expect this to drive further growth into the future.

Compared to M&S you’re paying a premium for quality, but Next is still not overpriced at a predicted 2016 P/E ratio of 16.48, with an enticing dividend yield of 5.51%.

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Prabhat does not own any of the shares mentioned in this article.