Im a big believer that real underlying economic strength is the best therapy for the market. Its no surprise to me then that growth in the FTSE 100 has been volatile and patchy given how patchy the British economic recovery has been.
Why not then focus your attention on the stocks that are exposed to the parts of the economy that are doing well, or are at least showing signs of promise?
What about retail?
The latest surveys on the retail sector are encouraging. It seems that falling oil prices, low inflation, rising real wages and a little more confidence among consumers are all helping some of the more mid-range retail companies.
The Confederation of British Industrys retail sales balance fell to plus 39 from plus 61 in December. Despite the fall, it beat expectations. The result, it seems, was boosted by the Black Friday shopping frenzy.
In addition, Gfks consumer confidence read jumped five points in January to its highest level since the middle of last year.
Before you say anything, no, its not supermarket sales driving these results at least not revenue growth at the likes of Tesco or J Sainsbury. In fact, the most fashionable items for consumers seems to be clothing. Clothing sales are experiencing their biggest rise in almost two years.
The director of economics at CBI was reported in the media recently saying that there was solid footfall through the doors over the Christmas trading period, leading to further robust growth in sales in the New Year.
A key beneficiary of this latest boost in spending will be Debenhams (LSE: DEB), I believe.
Over the four weeks to the 10th of January, like-for-like sales at the store increased by almost 5%, and online sales jumped by more than 25%. Thats not enough for investors, though. The real question is whether it can continue, and if the store can compete on price? If the factors leading to better-then-expected Christmas trading continue into 2015 though, and management gets its margins right, we could see Debenhams valuation increase.
As an aside, you might note that the store saw 250,000 womens handbags fly off the shelf over Christmas. Thats heck of a lot of handbags!
Marks and Spencer
A recent update from Marks and Spencer (LSE: MKS) wasnt too hot. The retailer said like-for-like general merchandise sales fell 5.8% in the third quarter. Sales were affected by the warmer autumn weather. However, the firm also reported record sales for food over Christmas and New Year period. The same macro-economic forces that may help Debenhams could inspire sales growth into 2015 at M&S. It was a disappointment at the time, but Im also encouraged by the fact that M&S was let down by its online distribution problems over the Christmas period. Sans tech problems, and the company could look materially better further into 2015.
Sales at Unilever (LSE: ULVR) (NYSE: UL.US) have had a bumper run since 2009, up more than 25%. Last year the company fell back a bit, though, with sales down by 2.7%. That was Unilevers worst performance in around a decade. Can it recover from here? Again analysts are pointing to the likelihood of falling commodities putting more cash into the pockets of consumers. Credit Suisse said recently that lower commodity prices will give a one-off boost to consumer goods firms profit margins, and that includes Unilever.
Investors are just hoping that the companies that benefit from these conditions can capitalise on their gains.
There you have it. Three retail companies that have growth potential in 2015.
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