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The Contrarian Approach to the Best Sector for 2018

After many years of declining sales and numerous bankruptcies, the retail sector may be the best alternative for investors throughout 2018.

Just recently, Hudson’s Bay Co (TSX:HBC) announced a quarterly loss of $243 million, or $1.33 per share, which led to a decline in the share price by close to 14%. The retail space is experiencing a shaking out of less-popular competitors, as brick-and-mortar sales are declining amid a major pickup in the e-commerce segment. The trend will not reverse itself.

The opportunity that massive corrections present to investors is the possibility of buying quality assets at a large discount, as the entire sector turns negative. Given the numerous bankruptcies in the sector, the last competitor standing may just make above-average profits over the long term. In Canada, only time will tell if Hudson’s Bay or competitor Canadian Tire Corporation Limited (TSX:CTC.A) will be the last name standing. Although the history of each competitor is very different, the truth is that each is now competing head to head.

South of the border, things are no different with retailers such as Toys R Us seeking bankruptcy protection. The key to succeeding in this sector may be to specialize in something that big-box retailers are not able to copy.

The best example is Foot Locker, Inc. (NYSE:FL), which delivers a significant amount of sportswear to customers and collectors alike. Although the concept of collecting running shoes is not hugely popular in Canada, it is a significantly lucrative market in the United States.

Shares of Bed Bath & Beyond Inc.  (NASDAQ:BBBY), which is a one-of-a-kind home retailer, is doing an excellent job at delivering for customers and investors, as the company’s footprint looks significantly different than any other large retailer. Essentially, the company is focused on the kitchen, bathroom, bedroom, and living room — ignoring outside the home and the garage. The company has clearly differentiated itself from other big-box retailers.

In Canada, Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) offers a truly Canadian product: winter coats and accessories. Canada Goose is in a prime position to be the biggest winner of 2018. As the company has been delivering a high-quality product for many years, mainstream consumers are now starting to recognize the brand across different generations. Canada Goose is currently trading at a 52-week high. Investors clearly have very high expectations for this name, as its product can be retailed though both brick-and-mortar and the online markets. Unlike running shoes, which have various specific sizes, coats usually come in no more than four sizes.

For investors not wanting to take the plunge into this name, another Canadian name which recently completed the initial public offering process is Roots Corp. (TSX:ROOT), which has been trading sideways throughout 2017. With another unique offering, investors may be wise to take a dive into this name.

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Fool contributor Ryan Goldsman has no position in any of the stocks mentioned.

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