There’s a whole lot of bad news for investors to contend with right now. There’s the fresh quarantine for France, which closely follows that for Spain. The headline GDP numbers offered little support and, as I write on Friday, the FTSE 100 index has weakened.
But there are clear pockets of recovery as well, which I think bode well for investors. A case in point is the sharp turnaround in retail sales numbers. According to the Office of National Statistics (ONS), retail sales volumes grew by 14% in June. More recently, the British Retail Consortium-KPMG sales monitor reported a 3.2% increase in retail sales volume in July compared to the same month last year.
Consider this FTSE 100 online retailer
I think this bodes well for retailers in general, but if we drill down to the specifics, food retailers or grocers are gainers. This is no surprise. The FTSE 100 online grocer, Ocado, has gained in the past months as consumers made more purchases online. According to its latest update, its revenue increased 27% from last year. While it refrains from providing forecasts, it does have a “positive outlook” as well. It’s true that there’s been a sharp run-up in the company’s share price through the year, but I’m a believer in its long-term story. Over time online sales will only increase, and Ocado will be an industry leader. I expect Ocado’s share price to remain elevated.
Comparatively, I’m still cautious about FTSE 100 bricks-and-mortar retailers like Tesco and Sainsbury’s, although both of them have seen healthy recent updates. In the case of Tesco, my big concern is the sustainability of its financial health, among other reasons for concern. This is true for Sainsbury’s too. Additionally, its share price movements have been weak and, unlike Tesco, it doesn’t pay dividends.
Companies that maintain homes
Besides grocers, I’d also consider buying stocks of home goods companies. As per ONS’s numbers, of non-food retailers, household goods stores are the only ones to have seen an uptick in sales in June. This correlates with improved performance of the FTSE 100 home improvement stock Kingfisher. Its sales have shown double-digit growth in the recent weeks and it “anticipates its half year adjusted pre-tax profit to be ahead of prior year”.
Relatedly, the FTSE 100 emergency home repairs provider, HomeServe, is another stock to consider. Its latest results show revenue growth and also some increase in operating profits. It also pays a dividend, which is worth noting, even though it has a small yield.
I reckon that it may not be all smooth-sailing for retailers from here. Even if consumer spending remains healthy in the next few months, the real extent of economic damage will be known only in October as the government’s furlough scheme is rolled back. I’d watch out for a bumpy time then, but I think over the long term, FTSE 100 companies targeting the retail market should stand in good stead. I’d start buying them now.
According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…
And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...
It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…
But you need to get in before the crowd catches onto this ‘sleeping giant’.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Homeserve and Tesco. 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.