Quality Retail Stocks To Invest In At Bargain Prices

Cato Corporation (CATO) is one of the first stocks that came up on my screener. Based on a 5-year average, the stock is trading near the bottom of the range in terms of price/free-cash-flow, price/earnings, price/sales and and price/book. “Bottom of the range” means the stock is trading at one of its most attractive valuations in recent history. While 5 years of valuation data is shown, current valuations are the most attractive they have been in more than 10 years.

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CATO valuation statistics

The company has no debt and has steadily growing earnings. Since 2011, earnings are close to $2/ share or higher, making the current price (near $22) look quite attractive. Buying at $20, now, is similar to buying at the 2008 low (because of the company has grown since then). I also like that the price is moving into a support area near $20. The price may drop a bit below that, but it is still an attractive place to buy.

If the company maintains current profitability, look to exit near $40. If earnings continue to increase, hold on to it (dividend yield is 6.1%) and sell it when the price is trading above 18 x yearly earnings.

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CATO weekly chart

Next up is Urban Outfitters (URBN). Based on a 5-year average, the stock is trading near the bottom of the range in terms of price/free-cash-flow, price/earnings, price/sales and and price/book. While 5 years of valuation data is shown, current valuations are the most attractive they have been in more than 10 years.

(Click on image to enlarge)

The company has no debt and and steadily growing earnings. Since 2013, earnings are close to $1.70/share or higher. I like this stock between $17 and $20. Earnings have fluctuated over the years, but buying it between $17 and $20 would be a great value. The $20 region is also a support area in this stock.

If the company maintains current profitability, look to exit near $40. If earnings continue to increase, hold on to it or sell it when the price is trading above 25 x yearly earnings. Urban Outfitters isn’t as profitable as Cato (on a per share basis), yet it has a tendency to trade at a higher valuation…that is why this stock has a different exit point.

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Disclosure: The author doesn’t have positions in these stocks currently, but may initiate positions if the stock prices slide a bit lower.

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