Retail

UBS Likes Specialty Retail: Time to Sell Department Stores

The American consumer has remained pretty consistent in 2013, helping to push along a still very slow economic recovery. One place they have spent money is the department stores around the country. The department store group as a whole is up 15% year to date, excluding troubled J.C. Penney Co. Inc. (NYSE: JCP). The retail analysts at UBS A.G (NYSE: UBS) are ready to sell the department stores and look for stocks to buy in the specialty retail and apparel manufacturing space.

In a new report, the team at UBS note that with unfavorable weather and high inventories in the first quarter of this year, they see little upside ahead for department store guidance. Without improving fundamentals, they also see little reason for price-to-earnings ratios to expand further relative to the market to justify a more positive stock outlook. While the fundamentals may not look that exciting for the department stores, the prospects for specialty retail and specialty retail products remains solid.

Here are the specialty retail stores and products stocks to buy at UBS.

Nike Inc. (NYSE: NKE) still dominates specialty athletic apparel and footwear sales. With global market share that could grow to 6.5%, sales have never been stronger. The UBS price target for the stock is $68. The Thomson/First Call estimate is $64. Investors receive a 1.30% dividend.

Foot Locker Inc. (NYSE: FL) is a retailer to buy at UBS. The company continued its expansion by buying German retailer Runners Point last week. The UBS target for the stock is $39, and the consensus is $40. Investors are paid a 2.20% dividend.

L Brands Inc. (NYSE: LTD) showed solid 2% comparable-store sales growth on Monday. The UBS target for the stock is $53. The consensus price target for the stock is also $53. Investors receive a 2.30% dividend.

Ralph Lauren Corp. (NYSE: RL) stock has been on fire. The company has continued to add popular merchandise to its vast portfolio of apparel and accessories. UBS has a target for the stock of $195. The consensus estimate is the same at $195. Investors receive a small 0.90% dividend.

TJX Companies Inc. (NYSE: TJX) is one of two specialty discount retailers that makes the list of stock to buy. The UBS target price is $53, but the consensus is lower at $50. Shareholders are paid a 1.10% dividend.

Ross Stores Inc. (NASDAQ: ROST) is another discount specialty retailer to buy. Ross Stores improved earnings per share by 25.9% in the most recent quarter, compared to the same quarter a year ago. UBS has a $75 target. The consensus is much lower at $68. Investors receive a 1.00% dividend.

V.F. Corp. (NYSE: VFC) is an apparel manufacturer with an impressive list of well-known names. In addition to the popular Lee Jeans brand, the company also designs and sells North Face, Timberland, Vans, Kipling, Napapijri, Reef, Eastpak, JanSport, SmartWool, Lucy and Eagle Creek brands, among others. The UBS target for this apparel giant is $191. The consensus is at $188. Investors are paid a 1.90% dividend.

ANN Inc. (NYSE: ANN) is a very popular destination for women shoppers. With a new Kate Hudson collection now available, sales have been strong. UBS has a $40 target for the stock. The consensus is lower at $35.

Express Inc. (NYSE: EXPR) wraps up the names to buy at UBS. Targeting men and women between 20 and 30, the company’s prudent customer-focused approach to merchandising sets it apart from its competitors. UBS has a $21 target, the same as the consensus estimate.

Clearly the economy will determine whether the retail sector continues to be a good buy for investors. If expected growth in the second half of the year does indeed materialize, then owning some of the UBS stocks to buy in the sector should prove to be a solid choice.

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