The retail sector is one of the biggest and most important sectors of Australia's economy. However, just because it's big doesn't mean it's a good investment.
There are plenty of reasons why investors should feel apprehensive of most retail businesses but I think there are a couple that are definitely still worth buying:
Greencross Limited (ASX: GXL)
The largest pet business in Australia has large vet and Petbarn networks. Management are using its retail network to its advantage by co-locating a Greencross vet inside many Petbarns. It's a great strategy and I think Greencross is worth holding over the next five years.
Vets are a good source of defensive earnings because people will put their pet's health above most other things.
Greencross is trading at 14x FY17's estimated earnings with a grossed-up dividend yield of 4.72%.
DuluxGroup Limited (ASX: DLX)
DuluxGroup owns a number of different home improvement brands including Dulux, British Paints, Selleys, Yates and Cabot's.
Warren Buffet has always talked up brand power, which allows the business to keep increasing prices faster than inflation. I agree with that philosophy, DuluxGroup has a great stable of defensive brands.
DuluxGroup is currently trading at 18x FY17's estimated earnings with a grossed-up dividend yield of 5.41%.
Foolish takeaway
I think both businesses will generate strong long-term performance, which is why I'm a shareholder in Greencross and want to add DuluxGroup to my portfolio. I think Greencross is trading at the best value due to its low price/earnings ratio but DuluxGroup has more reliable earnings.
