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The 3 best retail stocks of 2018 (so far)

It might seem strange looking for the best retail stocks when the high street is in a tailspin and the economy is doing so badly, but it’s at such times that bargains can be found. So here’s my pick of year’s biggest retail winners so far.

Storming growth

Back in January I saw JD Sports Fashion (LSE: JD) shares as being good value, even after having 10-bagged over the previous five years. And since the beginning of 2018, shareholders have enjoyed an additional 38% with the price now exceeding 470p.

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Results released in April helped, with revenue up 33% and pre-tax profit up 24%. And the world cup did its bit too. After the year’s share price climb, we’re looking at P/E multiples for this year and next of around 17 and 15, which are a couple of points higher than at the start of the year. But is there still room for more?

With EPS growth expected to slow, there’s a chance of short-term growth investors jumping off and seeking their next bandwagon. But JD is also expanding internationally, and I can see sustainable rises for a good few years yet, which I expect to turn into cash-cow dividends in due course.

Top end fashion

Burberry (LSE: BRBY) made the news recently by destroying large amounts of surplus stock rather than seeing it sold off at discount prices and damaging the firm’s exclusive brand image.

That’s done the shares no harm, and they’re up 17% over the year so far. Burberry is also making strong inroads into the online market, but bricks and mortar retail has been suffering a little as the stream of high-spending tourists arriving in the UK and Europe has slowed.

One thing that scares me is that Burberry is a single-brand retailer, and it’s surely more susceptible to the fickleness of changing trends than JD Sports. But Burberry has excelled at maintaining the desirability of its brand for decades, and has exported that to Asia with aplomb.

The downside for me is the share valuation, and with P/E multiples of around 25, I’m not really seeing the margin of safety that I’d like. But I could change my mind if we see a strengthening of longer-term growth

Biggest last

The biggest rise of my three picks is small-cap mail-order and educational supplier Findel (LSE: FDL). Its shares have been in the dumps over the past five years, but they’ve surged since last November’s low and have added 46% in value so far in 2018.

My colleague Harvey Jones took a look at full-year figures in June, and they looked pretty decent to me. But there are several things that make me wary of Findel at the moment. One is the erratic nature of the company’s earnings, which have been up and down over the past five years. And though expectations of strong growth in 2018 came good, we’re looking at unexciting predictions for the next two years.

Another is the firm’s net debt of £232m at 30 March, which is more than five times EBITDA. No wonder, then, that there haven’t been any dividends for the past few years and there’s little chance of any soon.

With a forward P/E of 11, last year’s serious undervaluation looks over. And though the share price recovery has been welcome, I wouldn’t buy now.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.