Consumer stock sell-off a buying opportunity

The Uncapped 100 is on track to close the week on a positive footing even as consumer discretionary stocks were dumped in the wake of the disappointing earnings update from Super Retail Group (SUL).

Super Retail may not be part of the Uncapped 100 but it is seen as a market darling. So when the auto, leisure and sports retail chain owner posted weaker than expected sales for the six months to end December, investors indiscriminately sold off the entire sector.

Consumer discretionary stocks on the Uncapped 100 tumbled 1% on average, but that isn’t enough to drag our index into the red. Australia’s group of most interesting emerging stocks is still up 0.6% ahead of Friday’s close and will likely end the week up 0.3%, or 0.5% ahead of the S&P/ASX 200 Index.

The sector sell-off is a buying opportunity as Super Retail’s problems stem largely from company specific issues. Management cited “short-term challenges across the group”, which relates to the implementation of new IT systems and auto parts supply issues.

But investors are in a “sell first, ask later” mood with Uncapped 100 stocks like automotive services and products company AMA Group (AMA) and sports shoe retailer RCG Corporation (RCG) taking a beating with a more than 2% sell-down.

We believe the problems at Super Retail will not extend to either company. This is particularly so for AMA Group and you can read a more detailed report on the group’s prospects here.