In this article, we will be taking a look at the 10 Best Retail Stocks to Buy Now.
Tech is Disrupting Retail
The rise of tech and artificial intelligence (AI) in the past few years has had an impact not only on the tech sector but on the entire market. The retail sector is no stranger to this impact, with analysts now considering tech-enabled innovation as one of the core drivers in the growth of the retail sector. As a result, those retailers that are taking the tech expansion seriously and are making investments to incorporate new technology in their operations are finally beginning to catch the market’s attention.
On June 24, Simeon Gutman, analyst at Morgan Stanley, joined CNBC’s “The Exchange” to discuss the impact of tech and AI on retailers and how these companies are making use of tech to drive up profit margins. Here are some of his comments on the retail companies to keep an eye on in this respect:
“Walmart’s the one that comes to mind the first… with Walmart, you’re hitting the nail on the head with several of these aspects of tech diffusion, and on top of it, they’re gaining market share in terms of tech diffusion. AI is easily one of them, big scale, lot of data, lot of opportunity to go through their data and enhance both the frontend of their business, drive more sales to customers, make things easier, and improve the backend.”
According to Gutman, big-box retailers are the sector’s winners when it comes to incorporating innovative tech in their internal operations. Because of such innovation in retail, and its consequent impact resulting in increased profit margins for retailers, there may be room to argue that retail is fast making a comeback in the market.
Retail Sector Outlook 2024
According to the WTW Global Retail Survey for 2024, 52% of retailers this year generally expect higher profitability within two years. Additionally, more retailers today (48%) are looking to incorporate artificial intelligence in their operations to offer personalized shopping experiences to their customers. However, the rise of tech and AI in the sector has also resulted in some retailers (43%) voicing concerns about higher cybersecurity risks arising through a greater reliance on new technologies.
Despite the risks involved, most retailers today are heading towards AI incorporation to meet customers’ demands. According to the survey, AI is primarily favored by online-only and electronic retailers because of its potential for catalyzing growth. By helping retailers automate their processes and supply chain operations, AI and new technologies can enable retailers to deliver personalized experiences and recommendations to their customers. This is an exceptionally important feature in today’s market, with consumers becoming more reliant on new technologies and their benefits in everyday life.
A woman in a retail store trying out a product, showcasing the retail colocation of the company.
Our Methodology
We sifted through ETFs and online rankings to compile a list of 25 retail stocks. We also used the Finviz stock screener to double check we didn’t miss any popular stocks. For this list, we have considered apparel retailers, discount stores, department stores, and home improvement retailers. We selected and ranked 10 stocks, from our initial pool of 25, that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds holding 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 Retail Stocks To Buy Now
10. Burlington Stores, Inc. (NYSE:BURL)
Number of Hedge Fund Holders: 40
Burlington Stores, Inc. (NYSE:BURL) is an apparel retail company based in Burlington, New Jersey. The company offers fashion-focused merchandise, such as ready-to-wear apparel, footwear, accessories, toys, gifts, and coats. It operates stores in Washington DC and Puerto Rico.
In the first quarter, Burlington Stores, Inc. (NYSE:BURL) reported revenue growth of 10.5% and its comparable-store sales rose by 2% from the year-ago quarter. The company has been benefiting from Bed Bath & Beyond’s bankruptcy, which has resulted in an increased demand for off-price retail products that it is able to provide. Burlington Stores, Inc. (NYSE:BURL) is also further expanding its operations with its new store in West El Paso, Texas.
As of May 31, Citigroup analysts hold a Buy rating on Burlington Stores, Inc. (NYSE:BURL). The consensus average price target on the stock is $265.5, with a high forecast of $284 as of June 28.
There were 40 hedge funds long Burlington Stores, Inc. (NYSE:BURL) in the first quarter, with a total stake value of $2 billion. At the end of the first quarter, Citadel Investment Group was the largest shareholder in Burlington Stores, Inc. (NYSE:BURL), holding 1.2 million shares in the company.
ClearBridge Investments mentioned Burlington Stores, Inc. (NYSE:BURL) in its fourth-quarter 2023 investor letter:
“Interest rate relief also had a strong impact on more cyclical companies and those with ties to general consumer spending. For example, consumer discretionary holdings and discount retailers Burlington Stores, Inc. (NYSE:BURL) and Five Below both rose during the quarter thanks to improving outlooks. Five Below, a specialty value retailer for products including apparel, accessories, novelty items, décor, cosmetics and accent furniture, rebounded from being one of the third quarter’s worst-performing stocks. We believe both Five Below and Burlington are particularly well-positioned for an economic environment where consumer budgets are being tightened but demand for discretionary goods remains stable.”
9. Abercrombie & Fitch Co. (NYSE:ANF)
Number of Hedge Fund Holders: 46
Abercrombie & Fitch Co. (NYSE:ANF) is a consumer discretionary apparel retailer based in New Albany, Ohio. The company operates as an omnichannel retailer. Its main markets are in the US, Europe, the Middle East, Asia, the Asia-Pacific, and Canada. We saw 46 hedge funds long Abercrombie & Fitch Co. (NYSE:ANF) at the end of the first quarter, with a total stake value of $786.7 million.
Abercrombie & Fitch Co. (NYSE:ANF) has been enjoying immense sales growth this year, with the company expecting sales in 2024 to rise by 10% compared to 2023. The company owns the reputed brand Hollister, and has been making a comeback in the past couple of years with demand for its products rising. For instance, in the first quarter, Abercrombie & Fitch Co. (NYSE:ANF) saw sales growth of 22% year-over-year, with Hollister brand sales growing by 12% as well.
The average analyst price target on Abercrombie & Fitch Co. (NYSE:ANF) is $166, with a high forecast of $215 as of June 28. As of May 30, Citigroup analysts maintain a Neutral rating on the stock.
Here’s what Chartwell Investment Partners, LLC said about Abercrombie & Fitch Co. (NYSE:ANF) in its third-quarter 2023 investor letter:
“Within the Carillon Chartwell Small Cap Growth Fund, information technology and industrials were the strongest-performing sectors, with strong stock selection leading to alpha generation. Abercrombie & Fitch Co. (NYSE:ANF) reported very strong earnings driven by significant margin improvement that resulted from much lower shipping and freight costs compared to last year.”
8. Macy’s, Inc. (NYSE:M)
Number of Hedge Fund Holders: 47
Macy’s, Inc. (NYSE:M) is another omni-channel retail organization on our list of the best retail stocks to buy. It operates stores, websites, and mobile applications in the US to sell merchandise such as apparel and accessories for adults and children. The company’s markets include the US, United Arab Emirates, and Kuwait, among others.
The consensus average price target on Macy’s, Inc. (NYSE:M) is $19.50, with a high forecast of $27, as of June 28. JP Morgan analysts maintain an Overweight rating on the stock as of May 22.
Macy’s, Inc. (NYSE:M) operates several retail brands such as Bloomingdale’s and Bluemercury, which have been propelling the company’s growth. Revenue for the company in the first quarter came in at $4.85 billion, topping analyst expectations of $4.82 billion. The company is working diligently to maximize profitability, which is why it is closing stores where sales are lagging while focusing on opening up small-format stores throughout the US. Through 2025, Macy’s, Inc. (NYSE:M) is aiming to open 30 new small-format stores.
In the first quarter, 47 hedge funds were long Macy’s, Inc. (NYSE:M). Their total stake value in the company was $493.1 million.
Holding 2.8 million shares in the company, Citadel Investment Group was the most prominent shareholder in Macy’s, Inc. (NYSE:M) at the end of the first quarter.
7. Dollar General Corporation (NYSE:DG)
Number of Hedge Fund Holders: 49
Dollar General Corporation (NYSE:DG) was spotted in the 13F holdings of 49 hedge funds in the first quarter, with a total stake value of $1.6 billion.
Dollar General Corporation (NYSE:DG) is a consumer staples merchandise retail company based in Goodlettsville, Tennessee. The company offers consumable products, such as paper and cleaning products, paper towels, bath tissues, and storage bags. It also offers home products such as kitchen supplies, appliances, and much more.
Dollar General Corporation (NYSE:DG) has been working to expand its product offerings to include fresh produce such as fruits and vegetables. The company’s private brand, Clover Valley, is operating on this front. Dollar General Corporation (NYSE:DG) is also currently benefitting from weaker competition in the market, especially with Dollar Tree heading towards the closure of several of its locations, while Dollar General Corporation (NYSE:DG) is planning on opening up at least 800 new stores in 2024.
As of June 28, the average analyst price target on Dollar General Corporation (NYSE:DG) is $149.3, with a high forecast of $170. Telsey Advisory Group analysts also maintained an Outperform rating on the stock on May 31.
This is what Artisan Partners said about 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.”
6. Lululemon Athletica Inc. (NASDAQ:LULU)
Number of Hedge Fund Holders: 51
Lululemon Athletica Inc. (NASDAQ:LULU) is an apparel, accessories, and luxury goods company based in Vancouver, Canada. The company designs and retails athletic apparel, footwear, and accessories.
In the first quarter, sales for Lululemon Athletica Inc. (NASDAQ:LULU) rose by 10%. The company benefits from its innovation in the apparel and footwear space, which ensures that it keeps up with the competition. Additionally, Lululemon Athletica Inc. (NASDAQ:LULU) distributes its products through a mixed approach using e-commerce and company-operated physical stores, which aid in reaching greater consumer bases and raising sales.
At the end of the first quarter, 51 hedge funds were long Lululemon Athletica Inc. (NASDAQ:LULU). Their total stake value in the company was $842.9 million.
As of June 6, Stifel analysts hold a Buy rating on Lululemon Athletica Inc. (NASDAQ:LULU). The consensus average price target on the stock is $410.4 as of June 28, with a high forecast of $505, showing immense upside potential.
Citadel Investment Group was the largest shareholder in Lululemon Athletica Inc. (NASDAQ:LULU) at the end of the first quarter, holding 1.1 million shares in the company.
Carillon Tower Advisers mentioned Lululemon Athletica Inc. (NASDAQ:LULU) in its first-quarter 2024 investor letter:
“Lululemon Athletica Inc. (NASDAQ:LULU) designs, distributes and retails athletic apparel and accessories. The company reported financial results that were ahead of estimates, but forward guidance came in slightly below what investors expected. The stock posted lackluster performance as the market priced in expectations that Lululemon’s U.S. business will slow down a bit more than initially anticipated.”
5. Ross Stores, Inc. (NASDAQ:ROST)
Number of Hedge Fund Holders: 55
Ross Stores, Inc. (NASDAQ:ROST) is an apparel retail company based in Dublin, California. It operates off-price retail apparel and home fashion stores. The company’s brands include Ross Dress for Less and dd’s DISCOUNTS.
Guggenheim analysts maintain a Buy rating on Ross Stores, Inc. (NASDAQ:ROST) as of May 24, while the average analyst price target on the stock is $162.8 as of June 28.
Being a dividend stock, Ross Stores, Inc. (NASDAQ:ROST) is considered an attractive stock pick for passive income investors. At the same time, the company is renowned for its proficiency in offering highly discounted department and specialty store products to its customers due to its efficient buying agents. Ross Stores, Inc. (NASDAQ:ROST) has a long-term goal of opening over 3,500 stores in the US, showing the company’s rapid growth and ability to expand in the future.
Ross Stores, Inc. (NASDAQ:ROST) was seen in the portfolios of 55 hedge funds in the first quarter, with a total stake value of $2.1 billion.
In its fourth-quarter 2023 investor letter, TimesSquare Capital Management mentioned Ross Stores, Inc. (NASDAQ:ROST):
“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.”
4. The TJX Companies, Inc. (NYSE:TJX)
Number of Hedge Fund Holders: 63
The TJX Companies, Inc. (NYSE:TJX) operates in the US, Canada, Europe, and Australia through its off-price apparel and home fashions retail stores. The company offers family apparel, home fashions, and other merchandise.
Some of the main brands operated by The TJX Companies, Inc. (NYSE:TJX) include T.J. Maxx, Marshalls, HomeGoods, HomeSense, Winners, and Sierra. Through its brands and stores, the company managed to grow its revenue by 5.9% in the first quarter, raking in a revenue of $12.4 billion for the quarter.
The average analyst price target on The TJX Companies, Inc. (NYSE:TJX) is $114.5 as of June 28. As of June 6, BMO Capital holds and Outperform rating on the stock as well.
A total of 63 hedge funds held stakes in The TJX Companies, Inc. (NYSE:TJX) in the first quarter, with a total stake value of $1.7 billion.
3. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 65
Costco Wholesale Corporation (NASDAQ:COST) is a consumer staples merchandise retail company based in Issaquah, Washington. It operates membership warehouses. The company’s markets include the US, Puerto Rico, Canada, Mexico, Japan, the UK, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden.
A Buy rating was maintained on Costco Wholesale Corporation (NASDAQ:COST) on June 25 by Tigress Financial analysts. The consensus average price target on the stock is $860.6 as of June 28.
Costco Wholesale Corporation’s (NASDAQ:COST) main business advantage is found in the fact that the company operates on a membership-based business model, through which it not only retains customer loyalty but also rakes in significant revenues with its membership fees. As of this June, the annual membership fees is $60, but there’s talk of this being increased. A significant portion of Costco Wholesale Corporation’s (NASDAQ:COST) income comes through its membership fees, with the company raking in $1.1 billion through these fees alone in the fiscal third quarter of 2024.
Costco Wholesale Corporation (NASDAQ:COST) had 65 hedge funds long its stock in the first quarter, with a total stake value of $4.6 billion.
2. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 67
Target Corporation (NYSE:TGT) is another consumer staples merchandise retail company on our list of the best retail stocks to buy. It is based in Minneapolis, Minnesota.
The company offers apparel, jewelry, accessories, and shoes for adults and children, alongside beauty and personal care products, among more. Target Corporation (NYSE:TGT) is among the oldest dividend stocks in the market today, having begun paying out its dividend in 1967, making this an attractive stock pick for income investors. Additionally, the company is boosting its online store and app by integrating Shopify into its e-commerce operations.
As of May 23, Deutsche Bank analysts maintain a Buy rating on Target Corporation (NYSE:TGT). The consensus average price target on the stock is $177.6 as of June 28.
There were 67 hedge funds long Target Corporation (NYSE:TGT) in the first quarter, with a total stake value of $2.3 billion.
1. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 88
Walmart Inc. (NYSE:WMT) is a consumer staples company based in Bentonville, Arizona. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores.
The average analyst price target on Walmart Inc. (NYSE:WMT) is $73.4 as of June 28. Additionally, Evercore ISI Group maintains an Outperform rating on the stock as of June 20.
In the first quarter, Walmart Inc. (NYSE:WMT) saw adjusted revenue growth of 5.8%. The company is making use of technology in retail through its online subscription service, Walmart+, which offers free delivery and efficient checkouts to its customers.
In the first quarter, 88 hedge funds were long Walmart Inc. (NYSE:WMT). Their total stake value in the company was $7.7 billion.
While we acknowledge the potential for Walmart Inc. (NYSE:WMT) to grow, 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 NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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