2 Retail Stocks Wall Street is All Wrong About

By Markets Fool.com

Continue Reading Below

Even though Wall Street might have thrown these retailers in the dumpster, we believe they have a bright future. Photo: Jim Fischer, via Wikimedia Commons.

The stock market has been on a ridiculous bull run for over six years, but some stocks -- particularly those of retailers -- are suffering greatly. While in certain cases there might be a good reason for the plunge, lower prices on someretailersoffer enticing entry points for value investors looking for a deal.

Two Motley Fool contributors offer their thoughts on two retailers they believe are a bargain. While Wall Street might have pushed shares of both companies down over the past few months, here's why investors should take a second look atJ.C. Penney andDeckers Outdoor.

Brian Stoffel(Deckers):While some investors might not have heard of Deckers, they are likely familiar with the company's two biggest brands of shoes: Ugg boots and Teva sandals. So far this fiscal year, these two brands have combined to provide over 90% of the company's revenue.

Shares of Deckers are trading 25% lower today than they were roughly three months ago. Much of that decline came in late January, when the company released its outlook for the current quarter that showed disappointing expectations for the Ugg-branded boots. Shares are currently trading for 16 times trailing earnings and free cash flow, which is cheaper than the broader market.

Continue Reading Below

If the Ugg brand really is in decline, then Deckers will have a tough time supporting its stock price. But we've been down this road before, and it has become abundantly clear the boots are a trend that is here to stay. Here's how Ugg sales have stacked up over the past four years, as well as the past three quarters.

Growth of Ugg Boots Sales | Create infographics

I'm willing to bet sales will continue increasing over time, and that the stock will eventually follow suit.

Rich Duprey (J.C. Penney):J.C. Penney remains in turnaround mode, and that apparently confuses Wall Street analysts about its prospects. Admittedly, it's hard to judge whether better performance at a troubled company is a trend or just a feint because it's often accompanied by a step backward for every one taken forward. The department store chain is no different.

It has surprised analysts on any number of occasions with stronger sales and better comparables than they anticipated, only to come up short on other metrics. The fourth-quarter earnings report is a case in point: revenue jumped 4% to $3.9 billion and comps of 4% exceeded management's expectations, but the retailer also recorded flat net income, badly missing Wall Street's forecast of an $0.11 per share profit. That's led analysts to warn of possible weakness later this year as J.C. Penney laps the strong comps numbers that confounded them across 2014.

But J.C. Penney has a lot going for it that will confuse the pros once again. Foremost is its partnership with beauty supplies leader Sephora, which continues to drive traffic to the department store, leading to greater cross-sales to those customers. Penney's traffic numbers are still negative overall, but they are running in the right direction.

It also got a handle on its inventory, clearing out all the deep-discounted merchandise and generating fatter margins, with gross margin rising 540 basis points last year to hit 34.8% of sales. Fine jewelry is helping drive those numbers higher, which together with Sephora ought to keep the retailer moving forward.

The right merchandise (it brought back customer-favorite brands) at the right price means J.C. Penney's path toward sustained profitability is just ahead. Shares are trading 20% higher than where they were at year's end, when Wall Street thought the company had achieved thebest part of its gains.

But even analysts are starting to come around. Piper Jaffray just raised its price target on Penney's stock to $14 a share and tripled its comparable sales estimates to 3% for the first quarter. The stock might be bounding higher today, but that's not the end of this Cinderella story for J.C. Penney.

The article 2 Retail Stocks Wall Street is All Wrong About originally appeared on Fool.com.

Brian Stoffel owns shares of Deckers Outdoor. Rich Duprey owns shares of J.C. Penney Company,. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.