Retail Sector in Recession: Which Stocks will Weather the Storm?

With Australia's retail spending down in six of the last seven quarters, the pressure on this sector is undeniable. In fact, Deloitte Access Economics' Retail Forecasts have identified that over the past 18 months, the retail industry has been in a recession, raising concerns about whether these figures could be a precursor to a broader economic downturn. In these uncertain times, one pressing question emerges: Are there stocks that can weather the storm?

Stocks that are likely to benefit from a retail sector recession

Enter the Consumer Staples sector. While it might not offer the thrills of rapid growth or high volatility, its resilience across different market conditions makes it a compelling choice in a weaker economy. As interest rates rise, consumers often tighten their belts on non-essential items, but essentials like groceries, household products, and personal care items remain a priority.

Take Coles and Woolworths, for instance. These supermarket giants recently reported impressive earnings, with Coles generating $1.1 billion and Woolworths pulling in $1.7 billion. These figures underscore strong consumer demand and highlight the companies’ adept management, even in challenging times.

But beyond these household names, there are other Consumer Staples stocks that deserve attention.

GrainCorp (GNC)

A leader in agribusiness, GrainCorp plays a crucial role in the grain and oilseed markets, both essential food products. As global food demand rises and supply chains face pressure, GrainCorp is well-positioned to benefit. Turning to the share price, since hitting a low in October 2023, the stock has surged over 30 per cent, approaching the $9 resistance level. A break above this point could pave the way for a retest of its all-time high at $10.86.

Inghams Group (ING)

One of Australia’s largest poultry producers, Inghams Group is a vital link in the food supply chain. The company recently reported a substantial 7.2 per cent increase in revenue growth. However, concerns over a decline in poultry volume growth triggered a 20 per cent drop in the share price. Currently, the stock is nearing the $3 historical support level, which could attract investors, although a dip below $3 would be a bearish sign.

Elders (ELD)

Elders provide essential services and advice to farmers and agribusinesses, positioning itself to capitalise on growing food demand driven by population growth. With its share price climbing over 60 per cent since the low in October 2023, Elders is on a strong upward trajectory, and a breakout above $10 could ignite a rally toward $15, offering significant upside potential.

In times of economic uncertainty, the Consumer Staples sector stands out as a smart choice for investors seeking stability and growth potential.

What were the best and worst-performing sectors last week?

The best-performing sectors included Real Estate, up 2.17 per cent, followed by Financials, up 2.15 per cent and Energy, up 1.13 per cent. The worst-performing sectors included Information Technology, down 1.66 per cent, followed by Consumer Discretionary, down 1.47 per cent and Healthcare, down 0.56 per cent.

The best performing stocks in the ASX top 100 included Downer Edi, up 15.73 per cent, followed by IDP Education, up 10.52 per cent, and Worley Limited, up 7.86 per cent. The worst-performing stocks included NIB Holdings, down 13.89 per cent, followed by Ramsay Healthcare, down 11.41 per cent, and Mineral Resources, down 10.40 per cent.

What's next for the Australian stock market?

With the All Ordinaries Index up over half a per cent last week, the question now is whether this marks the final push from the buyers in the short term or is a break to new all-time highs next. While buyers have shown strength over the past three weeks, last week marked the end of trading for the month of August and some caution is warranted for the month of September.

Over the past 40 years, the index has typically declined by over half a per cent during September, reinforcing the idea that the market could face headwinds in the coming weeks.

However, there’s some positive news as well. The materials sector has traded higher for the second week in a row, a first since May this year and the Financial sector has also shown strong performance this week, leading the market.

I've often emphasised that when Financials and Materials rise together, it’s unlikely that the market will experience a significant decline. The alignment of these key sectors suggests that any September pullback might be brief both in terms of depth and duration. In fact, with these sectors gaining momentum, there’s even a chance that September could surprise with a positive turn, potentially driving the All Ords to new all-time highs.

Regardless of the market's broader direction, it's essential to stay focused on individual stocks. Identifying and capitalising on stocks that outperform their peers or the broader market can make a significant difference to your return.

For now, good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.