Consumer confidence is on the floor nevertheless stockbroker Liberum Capital repeated some 21 ‘buy’ recommendations, albeit analysts say around half of those can wait for another day.
The broker has taken the axe to its profits forecasts, on average chopping off some 20% across all names in its coverage. Even so, stock-picking is recommended given that Liberum sees “serious upside” in a sector.
“With every downturn, we always enter a phase when negative news is priced in – so we would advocate not dismissing the consumer sector where there is serious upside to be had given how bombed out valuations have become,” Liberum analyst Wayne Brown said in a note.
Sports Direct parent Frasers Group PLC (LSE:FRAS) (‘buy’, 900p target), B&M European Value Retail SA (LSE:BME) (‘buy’, 725p target), and toilet roll maker Accrol Group Holdings PLC (AIM:ACRL)are among the names on Liberum’s ‘buy now’ list which comprises shares that should, according to Liberum, have more resilient earnings during a consumer downturn.
For these stocks the broker reckons “cash generation and balance sheets are healthy, pricing power remains strong and valuations are low relative to history making these compelling buys right now.”
In total, ten companies make this list also including AG Barr PLC (LSE:BAG) (‘buy’, 655p target), Card Factory (LSE:CARD) (‘buy’, 110p target), Fevertree Drinks (AIM:FEVR) (‘buy’, 2300p target), Hotel Chocolat Group PLC (AIM:HOTC) (‘buy’, 450p target), Superdry PLC (LSE:SDRY) (buy’, 450p target), Pets at Home Group PLC (LSE:PETS) (‘buy’, 510p target) and Wickes Group PLC (LSE:WIX) (‘buy’, 425p target).
A further eleven stocks were essentially put in the ‘buy later’ category, with Liberum saying there’s limited near-term catalysts.
These picks comprise Currys PLC (LSE:CURY) (‘buy’, 150p target), DP Eurasia N.V. (LSE:DPEU) (‘buy’, 140p), Halfords Group PLC (LSE:HFD) (‘buy’, 370p target), In The Style Group PLC (AIM:ITS) (‘buy’, 150p price target), Made.com Group PLC (LSE:MADE) (‘buy’. 150p target), Next PLC (LSE:NXT) (‘buy’, 7300p target), Science in Sport PLC (AIM:SIS) (‘buy’. 100p target), Topps Tiles PLC (LSE:TPT) (‘buy’, 100p target), Virgin Wines UK PLC (AIM:VINO) (‘buy’, 150p target), and Virgin Wines UK PLC (AIM:VINO) (‘buy’, €90 target).
“Many of these are market leaders or operate with distinct operating models and have emerged stronger from COVID – often because of transformations initiated before the pandemic or the pandemic providing a strong catalayst.
“However, there is sensitivity to discretionary spend and we have taken a prudent approach for these companies ahead of what we feel will be tougher times come the Autumn. Positive catalysts are more likely to be in short supply over the next 6 months or so.
“Investors have time, but at current valuations there is a chance to begin building a stake that we think should at least double in value on 3–5-year view.”
Fast fashion names led Liberum’s better-to-avoid list with Primark-owner Associated British Foods PLC (LSE:ABF), ASOS PLC (AIM:ASC) (‘hold’, 1500p target) and Boohoo Group PLC (AIM:BOO) (‘hold’, 70p target) marked out – with ABF downgraded to ‘hold’ from ‘buy’, target slashed to 1,700p from 2,600p, and online rivals ASOS and BooHoo similarly rated ‘hold’.
Naked Wines PLC (AIM:WINE, OTCQX:NWINF) (‘sell’, 280p target) and Domino's Pizza Group PLC (LSE:DOM) (‘hold’, 320p target) also made the dodge list.
“Any downturn aside, we already had questions around these companies for a combination strategic, business model and longer-term structural reasons,”
Joules Group PLC (AIM:JOUL) (‘buy’, 150p target) and THG PLC (LSE:THG) (‘buy’, 380p target) were marked as ‘special situations’ with the former needing to find investor confidence following its restructuring and the later deemed a speculative bid situation.