These fundies are sceptical of ASX retail shares in 2022. However, they believe 2 ASX retail shares still represent a bargain.
Let's take a look at what the experts predict might be facing the retail sector and which shares they have got their eyes on.
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Why are some experts wary of the retail sector?
Retailers have weathered a "perfect storm" since the beginning of the pandemic, Investors Mutual Limited senior portfolio manager Simon Conn told Livewire.
Consumers were stuck at home with many boosting their incomes with government stimulus. And that extra time and cash often found its way to ASX-listed retailers.
As a result, Conn thinks margins in retail stocks look slightly inflated and valuations "don't reflect more normal underlying running conditions".
And, as consumers enjoy more 'normal' lives in 2022, the sector could be in for a struggle.
Conn's fellow fundie Bruce Williams, Elston Asset Management portfolio manager, is also bearish on ASX retail shares. Livewire quoted Williams as saying:
They've had a period of unbelievable demand because we'd had no other choice… In our view, it meant these companies are actually over-earning.
Williams is concerned retailers might have seen earnings and sales "pulled forward" into the COVID period and could be about to experience a drop in demand.
However, Conn flagged two ASX retail shares that still look cheap in 2022.
2 ASX retail shares going cheap
Conn flagged Myer Holdings Ltd (ASX: MYR) and Best & Less Group Holdings Ltd (ASX: BST) as retail shares that still look very cheap.
"Both stocks have been impacted by the shutdowns and lockdowns, having had stores closed, and their margins haven't been artificially inflated by what's happened," he said. "So, we think both those businesses on price-to-earnings (P/Es) of less than 11, and 6 times in Myer's case, are good opportunities."
The Myer share price has tumbled 8% year to date. It's currently trading at 42 cents. Over the same period, that of Best & Less has slumped 6% to $3.89.
Meanwhile, Williams told the publication that he's waiting to learn what "normal sales" are and the growth rate of said sales.
"For us, it always just comes down to whether the valuation stacks up and we've got a margin for safety built-in there," he said.
