January will see a flood of news from the retail sector relating to both the key Christmas trading period and 2008 as a whole. With the failure of businesses such as Woolworths clear in the mind, the potential downside if things do not go to plan has been highlighted. No doubt there will be more casualties.
However, it is not all doom and gloom. Some prices have been battered down to a level where there is potential for shares to multiply in value. JJB Sports is one example of spectacular recovery potential.
Having been as high as 302p in 2007, the share price touched 2.85p at the end of last year. Since then the share has had an incredibly strong start to 2009 and traded as high as 9.5p. There is still scope for further gains and there are a number of positives which suggest JJB Sports is worth looking at.
It is obvious that the business faces some stern challenges otherwise the price would not have collapsed in the manner which we have seen, but if the company does survive the current sticky patch then those brave enough to invest now could be well rewarded.
Liberty has already released a trading statement, which was reassuring and offered a glimmer of hope that things may hold up reasonably well on the High Street.
Sales in December exceeded expectations and almost matched record figures from last year. Liberty would not be one of our recommendations for those looking to invest in the sector, but the trading statement made interesting reading. At the blue chip end of the market Marks & Spencer Group, Kingfisher, Next and Home Retail Group all have market capitalisations in excess of £1 billion, but therefore have much to lose if things turn sour.
Of these four Kingfisher, best known for its B&Q brand, has the greatest potential to fall in price given its relative outperformance in the recent past.
To summarise, it is clear that many retailers are facing an extremely tough time. Competition is fierce when the economy is in a worrying state and this means that the retail sector is far from being a safe haven for investors. Despite this fact there are some interesting opportunities emerging for those with appetite for risk and it may pay to keep on top of share prices when trading statements are released.
WARNING: Opinions expressed are the writers’ judgments at the time of writing. The information does not constitute a personal recommendation and readers should seek their own professional advice as to the suitability of the investments.
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