11 Best Retail Stocks To Buy Now

Published on October 31, 2023 at 3:40 am by Fatima Farooq in Hedge Funds, News

In this article, we will be taking a look at the 11 best retail stocks to buy now. To skip our detailed analysis of the retail sector, you can go directly to see the 5 Best Retail Stocks To Buy Now.

How Has The Retail Sector Been Performing?

With rising inflation that the Federal Reserve has been continuously striving to combat, it should come as no surprise to most people that your typical consumer has been unable to spend as much as they would like to. In such an economic environment, many consumers and investors would expect the retail sector to suffer. While this may be true to some extent, it should come as a comfort to investors that the retail sector is continuing to put up a good fight, as evidenced by its performance in the month of September.

On October 17, CNBC’s “Squawk Box” noted that retail sales in September were actually much higher than expected. Here’s what CNBC’s Rick Santelli had to say on the matter:

“Retail sales hitting the wires for the month of September. Expecting up three tenths on headline, more than double, up seven tenths of one percent. To find a higher number than that, you have to go back to January when we were up 2.8%, although we did have another seven tenths screen in May.”

This growth of 0.7% in comparison to the expected growth for retail sales, which was 0.3%, is a hopeful indicator that despite the inflationary environment, the retail sector is managing to stay in the green. Such performance can be a motivator for investors looking to invest in retail stocks today, especially those like Amazon.com, Inc. (NASDAQ:AMZN), Alibaba Group Holding Limited (NYSE:BABA), and Walmart Inc. (NYSE:WMT), since these are arguably some of the best retail stocks to buy now.

What Can We Expect From The Sector In 2024?

On October 24, Matthew Boss, JPMorgan’s retail analyst, joined CNBC’s “Squawk on the Street” to talk about his retail playbook heading into the next year. Here’s what he had to say:

“I’ve been a broken record on this show talking about value and convenience. That’s what matters to the low-to-middle income consumer. Walmart, Target, the discounters, the grocers, they’ve invested a tremendous amount of money over the last five years to be more convenient. Technology, battling up against the e-commerce retailers – I think that the small-box retailers, the dollar stores have lost a step on this convenience element, which means there’s an increased battle on value, which translates to margin compression. So our view is for value and convenience, it’s off-price. I love TJX and Ross Stores. I think that what they’re doing, they’re bringing top, known brands to the consumer at great values, and I think that’s the way to win in ’24 and ’25.”

By considering Boss’ analysis and top picks in the retail sector for the years to come, alongside our list below, investors will be sure to come across a variety of names that can be considered some of the best retail stocks to buy in 2023 and beyond. They include clothing retail stocks alongside general merchandise retailers and more. By picking up such stocks, investors can be sure that they have the top retail stocks in their portfolios as they prepare to head into the next year.

Our Methodology

We have selected the best retail stocks to buy now by using Insider Monkey’s hedge fund data for the second quarter. The stocks are ranked based on the number of hedge fund holders holding stakes in them, from the lowest to the highest number.

Best Retail Stocks To Buy Now

11. The TJX Companies, Inc. (NYSE:TJX)

Number of Hedge Fund Holders: 59

The TJX Companies, Inc. (NYSE:TJX) is an apparel retail company based in Framingham, Massachusetts. The company operates as an off-price apparel and home fashion retailer in the US, Canada, Europe, and Australia. It sells family apparel such as footwear and accessories and home basics such as furniture, rugs, lighting products, and giftware, among more.

A Buy rating was maintained on shares of The TJX Companies, Inc. (NYSE:TJX) on September 6 by Laura Champine, an analyst at Loop Capital. The analyst also raised her price target on the stock from $100 to $105.

There were 59 hedge funds long The TJX Companies, Inc. (NYSE:TJX) in the second quarter, with a total stake value of $2.1 billion.

Holding 57,624 shares in the company, Ayrshire Capital Management was the largest shareholder in The TJX Companies, Inc. (NYSE:TJX) at the end of the second quarter.

Here’s what ClearBridge Investments said about The TJX Companies, Inc. (NYSE:TJX) in its second-quarter 2023 investor letter:

“Top heavy leadership has overshadowed weakness across much of the equity market. We took advantage of the narrow breadth in the second quarter to increase our exposure to the consumer discretionary sector with two purchases that further enhance portfolio diversification and should help support consistent performance through a full cycle.

The TJX Companies, Inc. (NYSE:TJX) is the leading off-price apparel and home furnishings retailer known for its TJ Maxx, Marshalls and HomeGoods brands, with 4,800 global locations. We see TJX as a differentiated retailer offering shoppers a combination of value and convenience with continued share gain opportunity against large addressable U.S. markets for apparel and home decor. We also see room for TJX to modestly expand margins on the back of sales leverage and as freight, shrink and wage pressures ease. While TJX is not immune to macro risks, we see the company as relatively well-positioned even in the event of an economic deterioration as benefits from better inventory availability and consumer trade-down accrue.”

10. Lululemon Athletica Inc. (NASDAQ:LULU)

Number of Hedge Fund Holders: 61

Dana Telsey, an analyst at Telsey Advisory Group, reiterated an Outperform rating on shares of Lululemon Athletica Inc. (NASDAQ:LULU) on September 21. The analyst also maintained a price target of $450 on the stock.

Lululemon Athletica Inc. (NASDAQ:LULU) is an apparel, accessories, and luxury goods company. It designs, distributes, and retails athletic apparel, footwear, and accessories under the Lululemon brand, among more. The company is based in Vancouver, Canada.

We saw 61 hedge funds long Lululemon Athletica Inc. (NASDAQ:LULU) in the second quarter. Their total stake value in the company was $3.04 billion.

Viking Global was the largest shareholder in Lululemon Athletica Inc. (NASDAQ:LULU) at the end of the second quarter, holding 1.2 million shares in the company.

Kinsman Oak Capital Partners mentioned Lululemon Athletica Inc. (NASDAQ:LULU) in its first-quarter 2023 investor letter:

“What is relatively new, however, is that we are beginning to see substantial write-downs and impairment charges. For instance, Lululemon Athletica Inc. (NASDAQ:LULU) is already exploring a sale of Mirror, the struggling fitness technology company it bought less than three years ago for half a billion dollars. Lululemon executives recently announced a $433 million impairment charge on the business (-89%). That is not an insignificant amount of money.”

9. JD.Com, Inc. (NASDAQ:JD)

Number of Hedge Fund Holders: 64

JD.Com, Inc. (NASDAQ:JD) was spotted in the 13F holdings of 64 hedge funds at the end of the second quarter, with a total stake value of $2 billion.

JD.Com, Inc. (NASDAQ:JD) is a broad-line retail company based in Beijing, China. The company provides supply chain-based technologies and services in China. It offers computers, communication, and consumer electronics products alongside home appliances and general merchandise products such as food and beverages.

As of October 25, Ronald Keung, an analyst at Goldman Sachs, maintains a Buy rating on shares of JD.Com, Inc. (NASDAQ:JD). The analyst also placed a price target of $53 on the stock.

Like Amazon.com, Inc. (NASDAQ:AMZN), Alibaba Group Holding Limited (NYSE:BABA), and Walmart Inc. (NYSE:WMT), JD.Com, Inc. (NASDAQ:JD) is one of the best retail stocks to buy now, according to hedge fund sentiment.

8. Lowe’s Companies, Inc. (NYSE:LOW)

Number of Hedge Fund Holders: 64

Lowe’s Companies, Inc. (NYSE:LOW) is a home improvement retail company based in Mooresville, North Carolina. The company offers products for construction, maintenance, repair, remodeling, and decoration. It also offers home improvement products like appliances, seasonal and outdoor living products, and lawn and garden products.

A total of 64 hedge funds were long Lowe’s Companies, Inc. (NYSE:LOW) in the second quarter. Their total stake value in the company was $3.7 billion.

On October 5, Scot Ciccarelli, an analyst at Truist Securities, maintained a Buy rating on shares of Lowe’s Companies, Inc. (NYSE:LOW). The analyst also placed a price target of $235 on the stock.

This is what Pershing Square Holdings said about Lowe’s Companies, Inc. (NYSE:LOW) in its first half of 2023 investor letter:

Lowe’s Companies, Inc. (NYSE:LOW) is a high-quality business with significant long-term earnings growth potential operated by a superb management team that has been successfully executing a multi-faceted business transformation. In recent quarters, industrywide sales have retrenched slightly, driven by record lumber deflation, moderation in DIY discretionary demand (particularly with big-ticket items), a mix-shift from large to smaller Pro-specific projects, and a general trend of consumers reallocating budgets from goods to services. Sales remain elevated relative to 2019 baseline levels driven by a combination of price and mix, while units have largely normalized. Against this backdrop, Lowe’s headline same-store-sales growth has been modestly negative, offset by material margin expansion and the benefits of Lowe’s best-in-class share buyback program positioning the company to generate roughly flat earnings growth in 2023.

Lowe’s remains well positioned to manage through uncertainty. Nearly two-thirds of Lowe’s revenue comes from non-deferrable repair and maintenance activity, which is comparatively insulated from the macroeconomic environment. Lowe’s continues to make progress on various business initiatives that should aid the company’s ability to improve share and grow revenue even in challenging macro environments. Select initiatives for 2023 include the continued rollout of Lowe’s market-based delivery model (now >60% complete, a critical component of Lowe’s business transformation objectives), a new 300-store rural localization merchandising program, and enhancements to Lowe’s MVP Pro Rewards program…” (Click here to read the full text)

7. Costco Wholesale Corporation (NASDAQ:COST)

Number of Hedge Fund Holders: 67

Ayrshire Capital Management was the most prominent shareholder in Costco Wholesale Corporation (NASDAQ:COST) at the end of the second quarter, holding 9,364 shares in the company.

Costco Wholesale Corporation (NASDAQ:COST) is a consumer staples and merchandise retail company based in Issaquah, Washington. The company operates membership warehouses in the US, Puerto Rico, Canada, Mexico, Japan, and Korea, among a range of other countries. It offers branded and private-label products in several merchandise categories, including sundries, dry groceries, coolers, and more. It is one of the best retail stocks to buy right now.

Joseph Feldman, an analyst at Telsey Advisory Group, reiterated an Outperform rating on shares of Costco Wholesale Corporation (NASDAQ:COST) on October 19. The analyst also maintained a price target of $600 on the stock.

Our hedge fund data shows 67 hedge funds long Costco Wholesale Corporation (NASDAQ:COST) in the second quarter, with a total stake value of $2.2 billion.

Patient Capital Management mentioned Costco Wholesale Corporation (NASDAQ:COST) in its second-quarter 2023 investor letter:

“Many technicians and quantitative strategists expect growth stocks to continue to outperform. There’s a good shot that’s right but longer term, we remain more optimistic on classic value. People remain enamored with growth investing. Value stocks trade at a discount to historical valuations unlike growth stocks, which trade at a premium.

Take two high quality stocks as an example, Costco Wholesale Corporation (NASDAQ:COST) (“growth”) vs. JPMorgan (“value”). Costco (COST) has a long history of excellent performance, earning attractive returns on capital with consistent growth. Over the past 30 years, it’s grown earnings per share at 9% per year, but it’s compounded capital at better than 16% annually as the P/E multiple expanded from ~12x to 37x this fiscal year’s earnings. Sell-side consensus expects EPS growth to continue at roughly the same rate for the next 5 years. If it sustains the current multiple, the 9% implied return would be solid. But with valuations near all-time highs, and interest rates on the rise, there’s clear risk to that valuation.

Costco’s P/E grew from 18x to 37x during the same time JPMorgan’s fell from 12x to 10x. This makes sense to a certain extent because while both companies delivered improving returns on capital, Costco’s improved more. Valuations are sensitive to interest rates. Since JPM experienced no valuation expansion, it also seems to have less valuation risk.

We can calculate the justified P/E based on return on capital, cost of capital and growth rate. For companies with very high returns on capital and strong growth (like Costco), very high P/Es can be justified, especially in a low interest rate environment. We also analyze market implied expectations by calculating the implied growth rates. For Costco, it’s about 5.3% – in perpetuity! That seems elevated to us! For JPMorgan, it’s less than 0.5%. Way too low in our opinion.”

6. The Home Depot, Inc. (NYSE:HD)

Number of Hedge Fund Holders: 68

A Buy rating was maintained on shares of The Home Depot, Inc. (NYSE:HD) on October 5 by Scot Ciccarelli at Truist Securities. The analyst also placed a price target of $341 on the stock.

The Home Depot, Inc. (NYSE:HD) was seen in the portfolios of 68 hedge funds at the end of the second quarter, with a total stake value of $2.2 billion.

Based in Atlanta, Georgia, The Home Depot, Inc. (NYSE:HD) is a home improvement retail company. It sells building materials, home improvement products, lawn and garden products, and decoration products alongside others.

Like Amazon.com, Inc. (NASDAQ:AMZN), Alibaba Group Holding Limited (NYSE:BABA), and Walmart Inc. (NYSE:WMT), The Home Depot, Inc. (NYSE:HD) is among the best retail stocks to buy in this year.

Click to continue reading and see the 5 Best Retail Stocks To Buy Now.

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Published on October 30, 2024 at by Inan Dogan, PhD

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