In this article, we will look at the 10 Best Discount Retailer Stocks to Buy.
Overview of the Discount Retail Sector
With half a decade of geopolitical chaos, recession in Europe, and above-target inflation, the US economy has remained resilient. The primary reason behind this is the American consumer: their spending makes up around 70% of the country’s gross domestic product. However, recent calculations have been showing a decline in amount of money Americans are spending.
A recent survey by accounting firm KPMG corroborated this pattern, finding that while people were optimistic about their economic standing, they harbored doubts and skepticism about the direction the US economy is headed. The survey also found that nearly 65% of participants expected to do more discount shopping this year. Around 60% of this number made $200,000 or more. In addition, around 14% said that they were planning to use buy now, pay later services.
Brian Moynihan, CEO of Bank of America, said that he also noticed a slowing in purchase rates of his customers. Consumer payments grew by 3.5% since last year, down from a 10% growth from the year before. This included measurement through checks, credit cards, and ATM withdrawals.
The discount retail industry in the US thus holds a promising outlook. This positive outlook is fueled by technological advancements, changing consumer preferences, and strategic adjustments. Shoppers across the retail industry are prioritizing value over everything else, including cheap prices. This is why retailers like Dollar Tree Inc. are struggling, while business in stores like Target and Walmart is booming. A similar trend is also taking place in other industries, with companies like Applebee undergoing increasing sales while consumer sentiments about giants like McDonald’s are showing signs of waning.
The Consumer Goods and Retail Outlook 2024 report by Economic Intelligence forecasts global retail sales to grow by 6.7% in dollar terms in 2024. While 85% of these sales are expected to stem from brick-and-mortar stores, 2024 is expected to be the strongest growth year for offline retail after 2021. Inflation is also easing in 2024, but that does not seem to affect increasing consumer preference for lower prices, prioritization of basic life goods, and an unwillingness to pay hefty delivery fees. These factors are likely to drive consumers on a bargain-hunt to discount retailers.
The discount retail industry is one of the most resilient sectors in the face of economic unpredictability, strengthened by its ability to offer affordable services and goods. Product discount campaigns are emerging across the country, showing positive development trends and becoming some of the hottest topics in retail. Effective inventory management, better pricing, and operational initiatives are likely to boost sales in discount retail companies, provided they offer the one thing customers are increasingly looking for: value.
The US led the largest market for discount store retail across the globe in 2023, amassing $128 billion in sales. According to data reported by The Wall Street Journal, average consumer spending on grocery items at discount retailers increased 71% between October 2021 and June 2022. In addition, consumer patterns are also showing an increased inclination towards e-commerce, which is pushing companies to solidify their digital presence. Successful retailers are endeavoring to meet their customers both in-store and online, which is why 9 out of the top 10 e-commerce websites are run by retailers with brick-and-mortar stores.
Similar trends are appearing across the world, with discount stores rising to a prominent industry standing over the past years in the US, Europe, and Japan. Zhang Qiang, founder and CEO of Hitgoo, a discount retail chain, said that the next decade in China is likely to be marked by discount store expansion. Since the discount store model focuses on food and daily use merchandise, it can be successful in both the domestic and international market, presenting new opportunities.
With these trends showing a promising future for discount retailers, let’s look at the 10 best discount retailer stock to buy.
Niloo / Shutterstock.com
Our Methodology
We used the Finviz stock screener to identify stocks in the discount retailers business. We then shortlisted the stocks that were the most widely held by hedge funds, as of Q2 2024. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Discount Retailer Stocks to Buy
10. BBB Foods Inc (NYSE:TBBB)
Number of Hedge Fund Holders: 13
BBB Foods (NYSE:TBBB) is a Mexico-based discount retailer that manages the sale, acquisition, purchase, and distribution of all kinds of consumer goods and products. It also operates stores and distribution centers to market and sell these products. The company has a broad product range, comprising approximately 800 stock-keeping units (SKUs) of private, branded, and spot products. It also owns two Scottish companies: Lothian Shelf Limited and BBB Foods Limited Partnership.
BBB Foods (NYSE:TBBB) opened 121 new stores and an innovative distribution center in Q2 2024, bringing its total store count to 2,503 as compared to 2,288 stores at the end of 2023. It has opened 215 new stores since the start of 2024. The company’s expansion strategy appears on track, with plans to inaugurate around 380 to 420 new stores before the end of 2024.
BBB Foods (NYSE:TBBB) is undergoing continuous revenue growth powered by its expanding store network and strong underlying consumer demand. Its decentralized approach to expansion is proving effective, increasing same-store sales by 10.7% for the quarter. The company’s total revenue also grew by 27.5% year-over-year for the quarter.
However, sales growth in Q2 2024 was slow as compared to Q2 2023 due to several reasons, some of which included Easter falling in Q1 instead of Q2 like in 2023, alcohol sale restrictions in Mexico due to the June 2024 election, weather conditions, and the shifting of some government payment to Q1 from Q2 due to the June elections. Despite these short-term conditions, same-store sales for the company remained above the industry average. The company’s positive EBITDA margins and seamless working capital management are the primary drivers behind this self-funded growth.
BBB Foods (NYSE:TBBB) holds an advantage due to the strength of its business model, which is running on a growth trajectory of store growth, increased value generation, and increased sales per store. The stock sports a consensus Buy rating among analysts, and its median price target of $28.98 implies an upside of 11.01% from current levels. Investors are bullish on the stock, with BofA Securities maintaining their Buy rating for the stock. 13 hedge funds hold the stock as of Q2 2024.
Argosy Investors stated the following regarding BBB Foods Inc. (NYSE:TBBB) in its first quarter 2024 investor letter:
“While a small position, it is worth explaining what I find attractive about BBB Foods Inc. (NYSE:TBBB). Started by a McKinsey consultant (not always a sign of an attractive investment), Tiendas BBB is a hard discounter a la Aldi or Lidl, retailers well-known in the United States. TBBB operates over 2,200 stores in Mexico, with visibility to 12,000 stores over the long term, and I believe the potential for even more beyond that. As with Aldi, TBBB offers a limited number of primarily private label products, approx. 2,000-3,000, at less than 15% gross margins, in relatively small stores supplied by an efficient supply chain network. These metrics compare to competitors who stock tens of thousands of items, mostly third-party brands, and at gross margins >20%.
What allows the hard discounter model to thrive is the low number of stock-keeping units (SKUs), which results in higher sales per SKU, which allows the hard discounter to negotiate competitively at even a small scale vs other retailers. As their scale grows, hard discounters can negotiate increasingly better prices with suppliers, placing greater pressure on competitors who already operate on thin margins. Also as a result of the low number of SKUs, hard discounters are able to negotiate attractive payment terms, and because their inventories remain low as a result of high inventory turnover, they have negative working capital and generate positive cash flow as basically a perpetual loan from their suppliers. This cash flow allows hard discounters to pay for their growth without incurring significant debt.
As a result, we estimate TBBB’s 2020-2023 growth was 33% per year, while long-term debt only grew at a 5% rate. Because of the characteristics discussed here, TBBB is capable of growing stores by 15% per year in addition to growing same-store sales at 5-10% per year going forward. It seems likely they can continue at this pace for the next 10-15 years and returns could approach or exceed 20% per year.”
9. PriceSmart, Inc. (NASDAQ:PSMT)
Number of Hedge Fund Holders: 21
PriceSmart Inc. (NASDAQ:PSMT) owns and operates American-style membership warehouse clubs in South America, the Caribbean, and Central America. It is seldom called the Costco of South America and operates through 54 warehouse clubs located in 12 countries and one US territory. It offers its members a wide array of services and merchandise, including categories such as consumables, health services, fresh food, hardline, and bakery.
PriceSmart (NASDAQ:PSMT) is running on positive financials. Its net merchandise sales reached almost $1.2 billion in Q3 fiscal 2024, with total revenue of over $1.2 billion. Total revenue for the nine months ending May 31, 2024, came to $3.7 billion. There are several growth drivers for the company, starting with real estate. PriceSmart (NASDAQ:PSMT) plans to open its ninth warehouse club in Costa Rica and has acquired a six-acre property for the purpose. Its expansion is continuing to solidify its position in the industry, expanding its customer base and earning it a competitive advantage. Estimated to become functional in Spring 2025, the opening of the Costa Rica warehouse would bring the company’s total count to 55.
In addition, PriceSmart (NASDAQ:PSMT) is remodeling several high-volume clubs located in Honduras, Dominican Republic, and Trinidad and Tobago. It is also expanding its cubs in El Salvador, Costa Rica, and Jamaica, further establishing its regional presence. The company is also actively working out ways to enhance its distribution infrastructure. It started using distribution centers by a third-party in four different markets in Q3: El Salvador, Guatemala, Honduras, and Nicaragua. Opening distribution centers will allow the company to reduce debt landing costs, improve working capital, and reduce lead time.
Another of the company’s growth drivers is its omnichannel shopping options for customers, which include sales through its desktop website and app. Total net merchandise sales through digital channels increased by 27% in Q3 2024 as compared to Q3 2023, representing a record 5.5% of the total net merchandise sales for the company in the quarter. The stock has a consensus Buy rating among analysts, and its median price target of $85.40 implies an upside of 5.39% from current levels. 21 hedge funds hold stakes in the stock as of Q2 2024, and Nitorum Capital is the largest shareholder.
8. Ollies Bargain Outlet Holdings (NASDAQ:OLLI)
Number of Hedge Fund Holders: 27
Ollies Bargain Outlet Holdings (NASDAQ:OLLI) operates as a retailer of brand-name closeout merchandise and excess inventory. Principally, the company buys overstocked, overproduced, and closeout merchandise from wholesalers, manufacturers, brokers, distributors, and other retailers to sell to its customers. It operates in a warehouse format, featuring a wide array of categories ranging from hardware, clothing, and sporting goods to health and beauty, food, electronics, and much more.
The company has more than 513 stores across the US. It expects to open around 50 stores in 2024, with 70% of the openings taking place in the second half of the year. The company’s ultimate goal is to surpass the benchmark of 1,300 stores. To support its continued growth, Ollies is investing in supply chain, marketing, information technology, and its processes, all to streamline execution.
Ollies Bargain Outlet’s (NASDAQ:OLLI) exceptionally affordable deals give it a strong edge in the market. Its comparable store sales grew by 5.8% in Q2 2024, driven by growth in both basket and transactions. The company’s 42 years of industry experience, scale, and size is another strategic advantage fueling its growth. While other retailers sell stuff cheap, Ollies Bargain Outlet’s (NASDAQ:OLLI) holds a value proposition of selling “good” stuff for cheap. It sells nationally branded products at prices 20% to 70% lower than other stores, which resonates with its audience and shows no signs of going out of style. Customers are increasingly responding to the company’s deals and discounts, driving growth.
Ollies Bargain Outlet’s (NASDAQ:OLLI) also acquired several 99 Cents Only stores and is prioritizing their opening to accelerate its store growth over the next 18 months. A majority of these stores are set to open in September, and are expected to drive growth for the company because of their strategic locations. The company’s net sales increased by 12%, reaching $578 million due to new store growth and a 5.8% increase in comparable store sales.
Harding Loevner Global Small Companies Equity Strategy made the following comment about Ollie’s Bargain Outlet Holdings, Inc. (NASDAQ:OLLI) in its Q3 2023 investor letter:
“In the US, discount retailer Ollie’s Bargain Outlet Holdings, Inc. (NASDAQ:OLLI) gained sharply after the company reported accelerating same-store sales growth as higher-income customers found value in the company’s offerings.”
7. BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ)
Number of Hedge Fund Holders: 34
BJ’s Wholesale Club Holdings (NYSE:BJ), commonly known as BJ’s, is an American membership-only warehouse club chain that operates in the eastern United States, including Alabama, Tennessee, Ohio, Michigan, and Indiana. The company currently runs around 215 clubs in 16 states, stretching from Florida to Maine. It offers general merchandise, groceries, gasoline, and other ancillary services, promotions, and coupon books.
In its Q2 2024 earnings report, BJ’s Wholesale Club Holdings Inc. (NYSE:BJ) reported strong results with earnings per share (EPS) of $1.08 and revenue of $5.2 billion, reflecting a 5% increase from the previous year. This growth was driven by higher membership renewals, increased same-store sales, and strong performance in digital channels, bolstered by the company’s focus on value and private-label products.
Looking ahead, BJ’s Wholesale Club Holdings Inc. (NYSE:BJ) aggressive expansion plans, including opening new clubs in key markets, are expected to drive additional sales growth and capture a larger share of the warehouse club market. Investments in digital and omnichannel capabilities, such as enhanced online shopping and expanded curbside pickup and delivery options, are likely to attract more customers and boost sales.
The company’s most prominent market of long-term success is its 9% growth in membership fees in Q2 2024, its largest member count growth in a quarter since the pandemic. BJ’s Wholesale Club Holdings (NYSE:BJ) also saw strong membership renewal rates and strong growth in premium tier memberships. The company’s expanding digital presence provides a competitive advantage in an increasingly digital industry.
BJ’s Wholesale Club Holdings (NYSE:BJ) is organically expanding its member base in the existing market through its renewals and acquisition efforts. The company’s next membership milestone is to take the count to 7.5 million members, which it expects to reach in the back half of the year. 34 hedge funds hold stakes in the company as of Q2 2024.
TimesSquare Capital U.S. Small Cap Growth Strategy stated the following regarding BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) in its first quarter 2024 investor letter:
“Our preferences in the Consumer-oriented sectors lean toward value-oriented or specialty retailers, franchise models, or premium brands. BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) operates membership warehouse clubs. Its shares gained 14% after it reported better-than-expected comparable sales growth, in-line revenues, and earnings for its fiscal fourth quarter. Highlights of the quarter were increased membership and customer traffic.”
6. Dollar Tree, Inc. (NASDAQ:DLTR)
Number of Hedge Fund Holders: 38
Dollar Tree (NASDAQ:DLTR) is an American multi-price-point network of discount variety stores that sells a variety of merchandise, ranging from food and snacks to decor, electronics, automotive, toys, glassware, and much more. It operates more than 15,000 stores in the US and Canada, supported by a nationwide logistics network comprising 24 distribution centers. The company offers exceptionally discounted merchandise in convenient neighborhood stores, contributing to its popularity among consumers.
In 2024, Dollar Tree (NASDAQ:DLTR) acquired leases for 170 “99 Cents Only” stores across California, Arizona, Texas, and Nevada. As part of the deal, Dollar Tree (NASDAQ:DLTR) is also acquiring the North American Intellectual Property of 99 Cents Only stores, including select on-site furniture, equipment, and fixtures. The acquisition is a step forward in the brand’s accelerated growth strategy and an opportunity for expansion in priority markets with strong profitable growth potential.
Dollar Tree (NASDAQ:DLTR) functions on a strong differentiated business model and holds a long-term strategy of multi-price expansion with store growth acceleration, strengthening its position in the market. The company believes that increasing market share and sales growth stems from being responsive and sensitive to customers’ needs, which is precisely what it is doing by offering convenience and value to its customers.
The company’s multi-expansion strategy of converting its stores into its newest in-line format is working, as those stores are seeing an outsized sales lift. It is now prioritizing ready-to-convert stores and pushing them to the front line instead of focusing on stores that need additional prep work before realizing the complete array of conversion benefits.
Expansion of the in-line multi-price across the Dollar Tree portfolio is expected to be one of the primary drivers of growth for the company in the coming years, as less than 15% of its SKUs are multi-price. Dollar Tree has also created a completely new infrastructure to support its multi-price rollout, including in-store price checkers, self-tagged printers, and back-office functionality. It ranks sixth on our list of the best discount retailer stocks to buy. It is currently trading at a forward P/E of 12.00, at a -33.33% discount to its sector.
Here is what Madison Investors Fund stated regarding Dollar Tree, Inc. (NASDAQ:DLTR) in its Q2 2024 investor letter:
“Dollar Tree, Inc. (NASDAQ:DLTR) underperformed following a plethora of concerns: weakness surrounding the low-end consumer, pricing actions by peers, and disappointing sales at the core Dollar Tree banner. In addition, the significant news that management has placed the struggling Family Dollar banner under strategic review was received skeptically by investors. Despite these concerns, we are encouraged by the long-term prospects of the multi-price initiatives at the Dollar Tree banner and are entirely supportive of management’s effort to enhance value by evaluating alternatives for Family Dollar. We also see a comfortable margin of safety in the shares at the current price.”
5. Dollar General Corporation (NYSE:DG)
Number of Hedge Fund Holders: 42
Dollar General Corp (NYSE:DG) is an American retailer that runs a chain of discount stores across the US and Mexico. It offers a wide and discounted selection of merchandise, including consumable products like food, beauty, health, pet supplies, and cleaning products, as well as non-consumable items such as seasonable merchandise. It operates around 2,000 stores, and announced plans to open more than 800 stores across the US at the opening of its 20,000th store. The company also announced plans to remodel around 1,500 locations and relocate 85 stores in 2024.
Dollar General (NYSE:DG) is among the several retailers that have suffered under deteriorating economic conditions. Its Q2 2024 results fell short of expectations, primarily because its majority customer base of lower-income families suffered due to inflation. However, with inflation bubbling down, the company is expected to make a comeback. It is moving to compensate for losses and improve its profit margins by improving its stores and inventory handling. Enhancing the appeal of its stores is one of the company’s efforts to increase customer engagement.
In addition, Dollar General Corp (NYSE:DG) is one of the companies in a good position to benefit from the cuts in interest rates by the US Federal Reserve in September. The cuts are anticipated to increase liquidity in the market, which can drive sales by benefiting customers. The company is also working to ensure an accurate and timely supply chain, while improving its customer-center merchandising and in-store execution. It has plans to enhance customer experience by increasing employee presence at the front end of its stores and ensuring that its associates provide increased engagement to customers. It is also focusing labor hours on perpetual inventory management to facilitate its sales growth and improve in-stock levels.
Dollar General (NYSE:DG) is currently trading at a forward P/E of 14.23 at a 21% discount to its sector. 42 hedge funds hold stakes in the stock as of Q2 2024. Artisan Value Fund stated the following regarding Dollar General Corporation (NYSE:DG) in its fourth quarter 2023 investor letter:
“Our biggest full-year detractors included energy holdings Schlumberger and EOG and 2023 purchases Baxter International and Dollar General Corporation (NYSE:DG). Dollar General, a discount retail chain in the US, has dealt with a few struggles. The retailer had previously benefited from COVID stimulus checks, reflected in the bump it experienced in revenues and margins.
However, the effects have worn off, and its core consumer has been hurt by inflation, stiffer economic conditions, lower tax refunds and reduced SNAP benefits. Margins are also under pressure due to labor costs, shrink and markdowns. Some of the issues are likely self-inflicted. After years of focusing on store growth to drive the top line, store standards have suffered. Addressing store standards is needed to turn around flagging traffic, comps and customer satisfaction. On the positive side, discount retail due to its trade-down feature tends to be a defensive business during economic slowdowns.
Dollar General has a strong market position and faces less competition than other discounters due to its largely rural footprint. The business’s value proposition is everyday low prices, a convenient format, and proximity. The company has leverage due to capital expenditures, but interest coverage of ~9X is strong. From a valuation perspective, the froth from the pandemic, when it traded in the low- to mid-twenties, is gone. So, we aren’t paying for margin upside or store growth. Those would be bonuses. If the company can continue to grow revenues, generate cash flow, and buy back stock, we still see a path to success.”
4. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 52
Target (NYSE:TGT) is an American retail corporation that operates a chain of discount department stores and hypermarkets selling virtually everything, from clothing and groceries to electronics, sports, entertainment, and other general merchandise. It currently operates around 2,000 stores across the United States and plans to open more than 300 stores in the coming decade. In August alone, Target (NYSE:TGT) opened four new stores in Florida, South Carolina, and Texas.
Target’s (NYSE:TGT) EPS for Q2 2024 exceeded expectations by reaching $2.57, showing a 42% growth over last year. Its comparable sales grew by 2% in the same quarter, driven primarily by increased traffic. Apparel was one of the leading growth drivers, with comp sales rising by more than 3% due to the incorporation of newness, innovative design, and quality. The company’s All in Motion brand grew by resonating with a broader audience. The beauty and food and beverage sectors also drove growth, experiencing increasing consumer engagement due to increased variety. Target slashed prices on around 5,000 of the most frequently purchased items over the summer, further seeing increased sales.
Overall, Target (NYSE:TGT) is focusing on controlling what can be controlled and is directing attention to strong execution and retail fundamentals. It is also working on expanding its operating margin rate, aiming to move beyond its pre-pandemic annual rate of 6%. The company is also committed to continued disciplined capital deployment.
Target (NYSE:TGT) is trading at a P/E ratio of 16.17 at a 9.30% discount to its sector. It sports a consensus Buy rating among analysts, with its median price target of $153 presenting an upside of 17.17% from current levels. As of Q2 2024, Target (NYSE:TGT) is held by 52 hedge funds, with Diamond Hill Capital holding the highest stake worth $458.13 million. It ranks fourth on our list of the 10 best discount retailer stocks to buy.
Carillon Eagle Growth & Income Fund stated the following regarding Target Corporation (NYSE:TGT) in its Q2 2024 investor letter:
“Target Corporation’s (NYSE:TGT) sales continue to feel the consumer softness in discretionary goods. In addition, while margins are recovering, they are not up to expectations. Encouragingly, sales are sequentially increasing and comparable sales are expected to get easier as Target enters the back half of the year.”
3. Ross Stores, Inc. NASDAQ:ROST
Number of Hedge Fund Holders: 53
Ross Stores Inc. (NASDAQ:ROST) is a home fashion and off-price apparel chain in the US that offers name-brand and designer in-season apparel, footwear, accessories, and home fashion for a broad audience. It provides around 20% to 60% discounts on its prices as compared to regular department and specialty stores, solidifying its market presence and appealing to its audience. The company operates around 1,764 locations in 43 states across the US, Guam, and the District of Columbia.
The company also operates around 345 dd’s DISCOUNTS® stores in 22 states in the US, which offer even more discounted name-brand, in-season apparel, footwear, accessories, and home decor with around 20% to 70% off. All Ross stores are family-friendly, with items for every age group. The total count of Ross stores and dd’s DISCOUNTS® stores comes up to more than 2,109. It announced the opening of 21 Ross stores and three dd’s DISCOUNTS® stores across 17 states in the US in June and July. This expansion is a part of the company’s plans to open around 90 new stores in fiscal 2024, divided into 75 Ross and 15 dd’s DISCOUNTS® stores.
The company’s sales increased for the 2024 year-to-date period, going from $9.4 billion in 2023 to $10.1 billion in 2024. Comparable store sales also grew by 4% in Q2 2024, primarily because of increased basket size and improved traffic. Apart from rising sales, Ross’s improved profitability also benefited from lower incentive and distribution costs, which were partially offset as designed by lower merchandise margins. Ross Stores Inc. (NASDAQ:ROST) is taking steps to continue these improving trends by adjusting its assortments in its newer markets to resonate with a wider customer base. At the end of Q2 2024, the company’s total consolidated inventories rose 8% as compared to last year.
The company’s solid and profitable model is appealing to investors. Ross Stores Inc. (NASDAQ:ROST) also raised its guidance assumptions for Q3, with total sales forecasted to increase 3% to 5% compared to 2023. It also has plans to open 47 new stores in Q3, including 43 Ross and 4 dd’s DISCOUNTS® stores. Ross Stores Inc. (NASDAQ:ROST) holds a consensus Buy rating among analysts, with its median price target of $150.79 implying an upside of 16.06% from current levels. Morgan Stanley reaffirmed their Buy rating on the stock on September 4. 53 hedge funds hold stakes in the stock as of Q2 2024, with D E Shaw holding the largest stake worth $420.48 million.
TimesSquare Capital U.S. Mid Cap Growth Strategy stated the following regarding Ross Stores, Inc. (NASDAQ:ROST) in its fourth quarter 2023 investor letter:
“In Consumer-oriented sectors, we lean towards value-oriented or specialty retailers, franchise models, as well as premium brands. Also gaining 23% over the quarter was Ross Stores, Inc. (NASDAQ:ROST), an off-price retailer featuring apparel and home fashions. Third quarter results were solid as sales comparisons accelerated with higher levels of customer traffic across geographies. Management raised full-year guidance. We added to the position given our increased conviction at the start of the quarter.”
2. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 71
Costco (NASDAQ:COST) is a Washington-based multinational corporation that ranks second on our list of the 10 best discount retailer stocks to buy. It operates a chain of membership-only big-box warehouse retail stores, and currently has around 878 warehouses in the US. Costco (NASDAQ:COST) plans to open 28 new stores in 2024 across the globe, most of which are in the US. The company’s membership model offers exceptional prices to its customers, giving it a distinct competitive advantage in the industry. Its membership fee income reached $1.122 billion in Q3 fiscal 2024, undergoing an increase of 7.6% year-over-year. Membership renewal rates stood at 93% across the US and Canada and 90.5% globally, highlighting continued consumer confidence in the company.
Costco’s (NASDAQ:COST) investments in improving its e-commerce platform and expanding its store network are proving to be primary drivers of revenue growth. It reported an increase in net income for its Q3 of fiscal 2024, going from $1.3 billion in Q3 2023 to $1.68 billion in Q3 2024. The company’s net sales also increased in the same period, growing 9.1% from $52.6 billion in Q3 2023 to $57.39 billion in Q4 2024.
Costco’s (NASDAQ:COST) strong stock performance has boosted investor confidence, with positive anticipation for its Q4 2024 earnings report. Apart from strong analyst expectations regarding increased revenue and EPS, Costco’s effective cost management and strong brand loyalty make it stand out as a reliable investment with much growth potential.
Costco (NASDAQ:COST) sports a consensus Buy rating among analysts, with its median price target of $892 implying an upside of 4.88% from current levels. Mad Money host and former hedge fund manager Jim Cramer described the company as the second-largest pure-play retailer in the country, saying the following:
“Costco is like no other. It’s the second-biggest pure-play retailer in the country, and it functions basically as a gigantic buying group for its members who order pretty much everything. The membership gets you amazing prices, including some that are likely below what the store itself pays, like the bottles of wine I mentioned the other day and the gold bullion everyone is so crazy about.
Costco is a one-of-a-kind retailer where you might not find everything, but what you do find is likely cheaper than anywhere else. This store has done the most to roll back prices in this nation, often through its premium house brand, Kirkland Signature. Costco isn’t afraid to go after any nationally branded product if it won’t lower prices, and under the Kirkland label, they get prices down because the Kirkland brand is better than most of the branded stuff.”
1. Walmart Inc (NYSE:WMT)
Number of Hedge Fund Holders: 95
Walmart (NYSE:WMT) is an American multinational retail corporation that operates a chain of discount department stores, grocery stores, and hypermarkets in the United States and 23 countries. It has over 10,500 stores worldwide and employed around 2.1 million associates globally at the end of FY2024. 1.6 million of these associates were concentrated in the US.
Despite other retailers experiencing reduced consumer interaction and growth, Walmart (NYSE:WMT) is experiencing a strong consumer overall. Its latest earnings show increasing market share, with higher unit volume and transaction counts across the US. General merchandise, food, and health and wellness sectors continue to improve. The company claims that since consumers across all income levels look for one thing, value, its US marketplace sales grew by 32% for the quarter.
Walmart’s (NYSE:WMT) widespread presence, wide assortment of items, and convenience give it a competitive advantage in the industry. Customers have a lot to choose from, and a large number of stores to go to. In addition, it is improving its pickup and delivery services, offering even more convenience and increasing its e-commerce sales by 21% overall. Membership income for the company also grew by 23% globally.
Walmart (NYSE:WMT) is also working to streamline its operations in the long run. It is automating its supply chain and working towards tangible ways to leverage generative AI to enhance its customer, member, and associate experience. For reference, it integrated generative AI to improve its product catalog, which affects everything from helping customers find and purchase their items of choice to delivering orders and storing inventory.
Walmart’s (NYSE:WMT) sheer size also strengthens its industry presence. To put its size into perspective, Walmart (NYSE:WMT) operates around 10,600 stores around the world, with more than 50% of them located outside the United States in 23 other countries. Target (NYSE:TGT), in contrast, has around 2,000 stores, while Kroger (NYSE:KR) has 2,750. Walmart (NYSE:WMT) is also attempting to expand its customer base and appeal to the higher-income class by introducing high-end brands, such as premium wines and Chaps and Reebok in the apparel lines.
As of Q2 2024, 95 hedge funds held stakes worth 9.19 billion in the stock. It sports a consensus Buy rating from analysts, with its median price target presenting an upside of 4.88% from current levels.
WMT ranks first among the 10 best discount retailer stocks to buy. While we acknowledge the potential of discount retailer stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the stocks that are mentioned on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
