My Top Retail Recommendation for 2014

Yesterday I gave you a 30,000-foot view of the U.S. retail sector, including stocks to buy, stocks to sell, and everything in between. But after some careful consideration I realized that I didn’t want to leave things there. Because as solid as things are looking for the American consumer, my biggest retail bet isn’t based in the U.S. It’s actually a bit more exotic, and one that initially raised some eyebrows in my Blue Chip Growth letter, where I’m currently recommending it.

In fact, back in April I appeared on CNBC and got some flak for this recommendation.

I’m talking about Vipshop Holdings (VIPS), a leading discount retailer in China. The company targets China’s brand-oriented middle class, working with thousands of well-known brands to host online flash sales at deep discounts to regular prices.

While here in the U.S. we have off-price retailers like T.J. Maxx (TJX) and Ross Stores (ROST) as well as large outlet malls belonging to Tanger Factory Outlets (SKT) and Simon Property Group (SPG)’s Premium Outlets, China is significantly underdeveloped in terms of physical brick-and-mortar discount retailers and outlets, and consumers are going directly online for discounts on popular brands.

Enter the opportunity in Vipshop. Vipshop offers a selection of branded discount products, including apparel for women, men and children, fashion goods, cosmetics, home goods and lifestyle products, footwear, sporting goods, luxury goods and gifts.

A month ago, I almost sparked a debate on CNBC in saying that this stock had plenty of room left to run. At the time many in the financial media liked to pick on Chinese stocks, because it was the popular opinion at the time. But I don’t always follow the crowd. I bucked the trend because you couldn’t argue with the sales and earnings numbers backing up VIPS. And I’m glad I did: Since then stock has rallied nearly 19%.

And today shares popped after the company reported stunning results for the first quarter. Adjusted earnings per diluted ADS soared a whopping 271% year over year to $0.63, up from $0.17. Analysts were expecting $0.48.

Total net revenues surged 125.9% to $701.9 million, up from $310.7 million in Q1 2013. The company noted that the incredible growth in the first quarter was driven primarily by an increase in active customers and total orders.

Chairman and CEO Eric Shen commented: "We are very excited to report robust first quarter 2014 financial results, which reflect our continued strong growth momentum and increasing operational efficiencies."

Looking forward to the second quarter, Vipshop anticipates net revenues between $780 million and $790 million, much higher than consensus estimates for $685.6 million and representing 122% to 124.9% year-over-year growth.

I’m very pleased with how VIPS has performed lately. It just goes to show that sometimes it pays to go against the crowd. I consider VIPS a strong buy.

Sincerely,

Louis Navellier

Louis Navellier

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