In this article, we will look at 12 Cheap Retail Stocks to Buy According to Hedge Funds.
Will Trump’s Tariffs Impact Retail Stocks?
The Trump administration proposed 25% tariffs on goods imported from Canada and Mexico and 10% tariffs on Chinese-imported goods. Analysts believe these tariffs will affect retail stocks and the goods manufactured in the tariffed countries, at least theoretically. While tariffs on Mexico and Canada have been delayed, they have kicked in for China, according to Yahoo! Finance. This has led to several retailers moving sourcing out of China to contain costs.
Simeon Siegel, retail analyst at BMO Capital Markets, appeared in an episode of Yahoo! Finance’s Opening Bid podcast. Talking about the potential effect of Trump’s tariffs on retail stocks, he was of the opinion that we are focusing on tariffs more than is required. Taking a purely business perspective, he reasoned that a tariff is nothing more than a cost input going up, quite like how the cost of cotton, shipping, or labor can rise.
When such cases materialize, companies take steps to deal with the rising costs, but they don’t become all-encompassed by them. Siegel posited that the uncertainty surrounding this scenario is dramatically more concerning than the actual severity. Approaching the situation as an analyst, he said that he is focusing on companies with the pricing power and capability to deal with rising costs, regardless of why the costs are increasing. Healthy brands with healthy businesses are thus the way to approach this conversation.
Big Tech’s Massive CapEx Plans: Will They Affect Retailers?
Big Tech’s massive capex plans dictate the potential spending of a cumulative $325 billion in capital expenditures and investments in 2025, primarily due to a strong commitment to building AI infrastructure. While it does not seem evident, Morgan Stanley is of the opinion that retail stocks might be the overlooked winners of these significant AI investment plans. AI “hyperscalers” are invested in a spending race, which might prove to be a tailwind hidden in plain sight for the retail sector, which is already evolving due to the technological leap surrounding AI, automation, and data.
Equity analyst Simeon Gutman said that while retailers may not be as invested in pursuing AI infrastructure investments as tech companies, “the tech capex boom suggests retailers are on the verge of and should benefit from a technology inflection.” The announced $325 billion may not be an initiative taken to directly impact the retail sector, but Morgan Stanley predicts that it may result in a capex boost amidst retailers in a position to afford it. The boom may present big-box retailers with significant investing opportunities to improve and augment automation, in-store experiences, and advertising. Consequently, market share gains may materialize for retailers in the best position to invest.
With these trends in mind, let’s examine the top 12 cheap retail stocks to buy according to hedge funds.
A stylish young woman modeling a dress from the retailer showcasing its cutting-edge fashion.
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of 30 retail stocks. We checked their forward P/E ratios (less than 15) and then selected the top 12 most popular stocks among elite hedge funds as of Q3 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment. Please note that the forward P/E ratios are as of February 11, 2025.
Why do we care about what hedge funds do? 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).
12 Cheap Retail Stocks to Buy According to Hedge Funds
12. Nordstrom, Inc. (NYSE:JWN)
Forward P/E: 12.22
Number of Hedge Fund Holders: 32
Nordstrom, Inc. (NYSE:JWN) offers luxury, private-label merchandise for women, men, and children, primarily focusing on apparel, beauty, shoes, accessories, home goods, and more. The company delivered 4% comparable sales growth in fiscal Q3 2024 through Nordstrom and Nordstrom, which supported it in surpassing $3.3 billion in net sales for the quarter.
Its online business is another prominent growth driver for the company, undergoing more than 6% digital sales growth in the quarter. Much of this growth was attributed to the newness Nordstrom, Inc. (NYSE:JWN) has introduced in its brands. Customers are increasingly relating to the company’s offerings, which is driving positive company net sales growth for the fourth consecutive quarter.
Nordstrom, Inc. (NYSE:JWN) has plans to continue this positive momentum through several primary priorities, including operational optimization, Nordstrom banner growth, and continued momentum growth at Nordstrom Rack. Nordstrom, Inc. (NYSE:JWN) has also made substantial progress in its supply chain to support growth, reducing operating expenses and expanding its focus to increasing speed. It is prioritizing quick order deliveries to its customers and is moving products efficiently through its network to provide freshness and relevance. These strategies are proving successful, as the company’s initiatives for faster delivery of items and fulfillment drove an improvement of more than 40% in the speed of customer returns in fiscal Q3 2024.
11. Walgreens Boots Alliance, Inc. (NASDAQ:WBA)
Forward P/E: 6.2
Number of Hedge Fund Holders: 33
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is an American multinational company providing retail, pharmacy, and healthcare services. The company has approximately 12,500 locations across the US, Europe, and Latin America. Its brand portfolio includes well-known brands like Walgreens, Boots, Duane Reade, o7 Beauty Company, and Benavides.
The company is reevaluating its merchandising strategy to identify with its consumers more closely. It plans to expand its brand offerings while being selective with national brands, particularly in health and wellness categories. In fiscal 2024, it launched more than 300 new owned brand products and plans to launch another 300 in fiscal 2025.
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is also implementing a strategic footprint optimization program to close approximately 1,200 underperforming stores over the next three years. The company has planned around 500 closures for fiscal 2025. Through this strategic move, Walgreens Boots Alliance, Inc. (NASDAQ:WBA) expects to improve its adjusted earnings per share (EPS) and free cash flow. Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is also optimizing its retail presence and is focusing on strategic cost management initiatives. It ranks 11th on our list of the 12 cheap retail stocks to buy according to hedge funds.