You might think I'm mad going for a retail sector stock, especially one that has lost 70% of its value since a peak in 2014. That's what's happened to N Brown Group(LSE: BWNG), and when you look at several years of declining earnings, you might not be too surprised.
But retail isn't dead, it's just, well, if not resting, going through a transformation. And what's going to emerge will surely be very different from the old "traipsing round the shops" model of old.
I reckon N Brown, owner of a number of brands including JD Williams, Jacamo and Simply Be which cater for plus-size customers, is ahead of the curve (pun intended).
The past few years have seen the company ditch its old mail-order business and move entirely to online shopping. Judging by the success of companies like Boohoo.com and the struggles faced by the high-street stores of Marks & Spencer, that's surely the way to go.
N Brown does actually own 20 bricks-&-mortar stores, but in its last full year they only contributed 2% of group revenue (and lost money). The company is currently considering closing these stores -- an obvious good move, in my view.
I reckon weak sentiment has pushed the shares too far down now, and with earnings expected to start rising slowly again, we're looking at P/E multiples of under eight. Oh, and forecast dividend yields of almost 8% too.
The dividend might perhaps come under pressure, but analysts are actually predicting a modest rise by 2020. I think N Brown is a risk worth taking.
Safe as the proverbial?
Confidence in housebuilders is also starting to falter, though few have seen their shares suffer as badly as Crest Nicholson Holdings(LSE: CRST). From a high of 638p in May 2017, we've seen a 35% fall.
That's partly due to fears that the housing market is slowing down, though I can only see that as a relatively short-term thing -- surely an overall flat market for even 20 years would still see housebuilders making attractive profits.
The effect was compounded by first-half results, which showed a 2% decline in earnings per share, and that's got to have driven away lots of growth investors now that the rampant recovery phase of the industry is coming to an end.
But here's the thing... Housebuilders do not need rising house prices in order to make profits. When house prices cool, land prices also cool, and profit margins don't need to suffer too much.
In fact, that was behind my bullishness on housebuilders back in the early 2000s. House prices were stagnating, and investors deserted housebuilders in their masses. But those canny companies had plenty of cash and were buying up building land at knock-down prices -- and for me, that was a sure-fire sign of the boom that was to come.
Let's get back to Crest Nicholson and its share price valuation. EPS is expected to drop 2% this year, but pick up 8% in 2019. And dividends are expected to yield around the 8% level this year and next, which is a yield almost to die for. The shares are on a forward P/E of an incomprehensibly low 6.5.
The housebuilding sector is volatile, but I see that as irrationally down to short-term investors. Those of us who know better can do well from our long-term view.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.