The last few years have been extremely difficult for retailers. Thats because wage rises have been below inflation since the credit crunch and have meant that shoppers have less disposable income in real terms.
As a result of this, consumer spending has been weaker than it otherwise would have been, with customer spending habits changing. Indeed, no-frills operators and heavy discounting have come to the fore in the recent past.
Looking ahead to this Christmas, though, and it could be the first one since the start of the credit crunch where spending surprises on the upside. As a result, these three retailers could shine in the short term.
Despite having a strong recent run that has seen them rise by 8% over the last month, shares in J Sainsbury (LSE: SBRY) remain dirt cheap. For example, they trade on a price to earnings (P/E) ratio of just 10 and their price to book ratio is just 0.85. As a result, they could be subject to a significant upward rerating over the short and medium term.
Furthermore, with Sainsburys moving into the no-frills space via its joint venture with Danish operator, Netto, the company may be able to stave off further customer losses and actually benefit from the shift in consumer shopping habits. After all, it would not be surprising for many of Sainsburys customers to prefer to shop at a no-frills operator that has the backing of the supermarket, rather than one that doesnt.
As such, Sainsburys could continue its recent gains and, with this Christmas set to be the most economically prosperous one for many years, it could perform much better than is currently expected.
Despite the recent warm weather hurting sales at Next (LSE: NXT), it remains a superb long-term play. As with all mid-price point retailers, it has been hit to an extent by a shift to lower-priced alternatives, but Next has delivered surprisingly strong results in recent years, with earnings growth averaging 19% per annum over the last five years.
However, there could be more to come, with Next expected to post profit rises of 13% and 10% in each of the next two years. This rate of growth, combined with a P/E ratio of 16.4, equates to a PEG ratio of just 1.4 which, for a high quality stock such as Next, seems to indicate good value for money.
Although the winter season has been rather slow to kick-off, Next is likely to post strong numbers as it continues to benefit from a high degree of customer loyalty and the tailwind of a consumer with more disposable income than in previous years.
2014 has been something of a reality check for ASOS (LSE: ASC), with shares in the company falling by a whopping 59% since the turn of the year. Furthermore, it has encountered significant logistical problems in trying to expand outside of the UK, which could continue over the medium term.
Despite this, ASOS continues to trade on a P/E ratio of 57.4 and, as a result, its share price could come under pressure over the medium to long term especially if growth does not return to its bottom line.
However, the upcoming Christmas period could deliver an improved performance for the company. Thats largely because of a customer base with much better economic prospects: youth unemployment is less of a challenge than it has been in previous years and, as a result, ASOSs 15-30 age demographic could spend more this Christmas than they have done in previous years.
So, while ASOSs shares do appear to be overvalued for longer-term investors, they could see sentiment tick up in the short term due to stronger UK performance than in recent years.
Clearly, there’s more to investing than looking at the prospects for companies during the Christmas period. In fact, here at The Motley Fool, we think that every investor could generate improved returns from following a series of simple steps.
In fact, we’ve written a free and without obligation guide called 7 Simple Steps For Seeking Serious Wealth. It could help you retire early, pay off your mortgage, or simply allow you to enjoy a more abundant lifestyle.
Click here to obtain your free and without obligation copy of the guide – it’s well-worth a read.
Peter Stephens owns shares of Sainsbury (J). The Motley Fool UK owns shares of ASOS. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.