In this article, we discuss the 13 most undervalued retail stocks to buy now. To skip the detailed analysis of the retail industry, go directly to the 5 Most Undervalued Retail Stocks To Buy Now.
According to Economic Intelligence’s consumer goods and retail outlook 2024 report, in 2024, global retail sales are projected to grow by 6.7%, with a 2% increase in volume due to a slowdown in inflation. Despite this growth, some challenges remain due to depleted household savings and high food prices, especially in developing economies. Additionally, the report states that online sales are expected to see double-digit growth in 2024, reaching 14.6% of total global retail sales. However, online retailers will continue to face challenges in maintaining profitability due to some regulatory issues.
The online retail industry experienced significant declines after its February 2021 highs. While the industry is still a long way from complete recovery, it still showed decent performance over the last 12 months. Amplify Online Retail ETF (IBUY) is still 58.5% lower than its February 12, 2021 levels but has gained 38.21% in the last 12 months, compared to 27.20% gains of SPDR S&P Retail ETF (XRT) and S&P 500’s 30.82% gains, as of March 26 market close.
Future of Retail According to Retail Executives
On February 16, CNBC shared the predictions of top retail executives that included Abercrombie & Fitch Co.’s (NYSE:ANF) CEO, Fran Horowitz, Levi Strauss & Co.’s (NYSE:LEVI) CEO, Michelle Gass, chief e-commerce officer of Walmart Inc. (NYSE:WMT), and a few others.
The executives mentioned that the retail landscape is shifting towards smaller, omnichannel stores that are strategically located to align with what customers want and need. The retail spaces will be set up to run smoothly and will guarantee a hassle-free shopping experience. Additionally, traditional brick-and-mortar stores are transforming into engaging places that offer immersive experiences and much more than the typical shopping trip to captivate customers’ senses. Abercrombie & Fitch Co.’s (NYSE:ANF) CEO, Fran Horowitz said:
“The future of retail is small, efficient, omni stores, and they’re located where the customer tells us. [For Abercrombie] these big, massive stores were just not productive and not efficient — the consumer was responding to a much more intimate associate experience, and then economically, they were not productive. You don’t get the kind of traffic through the stores like you did in the past when there wasn’t a digital option, so you have to provide a location that is financially sound, which has X amount of traffic and X amount of digital orders that come together.”
Additionally, the executives emphasized the role of AI in the future of retail. They said that AI will reshape retail through personalized experiences owing to data analysis. Advanced algorithms will deliver tailored recommendations and promotions and that will improve customer satisfaction and loyalty. Additionally, AI will help with the seamless integration of online and offline channels, which will make transitions for shoppers much easier. This can enhance convenience and flexibility and encourage customers to engage with retailers across various platforms. As CEO of Levi Strauss & Co. (NYSE:LEVI), Michelle Gass said:
“If you think about the technology today, broadly speaking, a lot of what you might see in the personalization is, okay, if you’re an avid buyer of [Levi’s] 501s [jeans], you might get a recommendation on the next exciting wash of a 501, or something similar. But I think where the technology is going to go is it’s going to be able to leap into something like, to go from you’re a 501 shopper to this is going to be the perfect denim skirt for you and make bolder leaps, but do it in a way that’s informed based on your shopping history and who you are.”
The executives also stated that sustainability and inclusivity are some of the top priorities in retail, with a focus on inclusive sizing and sustainable practices like using eco-friendly materials and ethical sourcing. Sam’s Club CEO Chris Nicholas mentioned that renewable energy and electric vehicles are going to become vastly important in the future of retail. On December 13, Walmart Canada announced putting Canada’s first electric semi-trucks on the road. According to the company, each of the trucks will travel around 68,000 miles annually. On top of that, these trucks will save around 100,000 liters of fuel annually.
Recent Updates on Major Retail Companies
One of the best discount retailer stocks and the largest retailer in the world, Walmart Inc. (NYSE:WMT), announced its fourth quarter and FY 2024 results on February 20. The company’s revenue grew by 5.7% year-over-year and amounted to $$173.4 billion. The company’s global e-commerce sales grew by 23%, and its gross margins saw an improvement of 39 basis points. Moreover, the company’s FY24 net income increased by 44.1% year-over-year, reaching $16.27 billion. Here are some comments from Walmart Inc.’s (NYSE:WMT) Q4 2024 earnings call:
“From scaled businesses to our faster growing newer businesses, we’re well on track to continue to hit the financial targets we laid out and make important investments for the future. And while we do this, we can grow in a way that helps us achieve our goals of creating opportunities for our associates and becoming a more sustainable business. In 2017, we announced a bold ambition to work with our suppliers to reduce, avoid, or sequester one gigaton, that’s 1 billion metric tons, of greenhouse gas emissions by 2030. We call it Project Gigaton. Our merchants and suppliers got to work and made investments in practical things like energy efficiency, packaging, redesign, and load optimization. We’ve reported steady progress since then, and we’re excited to say that our suppliers have now reported projects exceeding that 1 billion metric ton mark six years early.”
Moving on to one of the best internet retail stocks, Amazon.com Inc. (NASDAQ:AMZN) reported a net income of $30.4 billion for FY23 after running at a $2.7 billion net loss in 2022. The company’s operating cash flow also increased nearly 82% to $84.9 billion. In Q4, 2023, the company experienced a record-breaking holiday shopping season, and its net income surged by a whopping 3,433% to $10.6 billion. Here are some comments from Amazon.com, Inc.’s (NASDAQ:AMZN) Q4 2023 earnings call:
“As we look forward to 2024, we anticipate CapEx to increase year-over-year, primarily driven by increased infrastructure CapEx, support growth of our AWS business, including additional investments in generative AI and large language models. One thing I’d like to highlight in our first quarter guidance is that we recently completed a useful life study for our servers and we are increasing the useful life from 5 years to 6 years beginning in January 2024. We will have this anticipated benefit to our operating income of approximately $900 million in Q1, which is included in our operating income guidance. As we turn the calendar to 2024, we are excited to continue upon the great work the teams have been able to deliver in 2023. We remain focused on streamlining and prioritizing projects in an effective way that reduces costs and also allows us to continue innovating and inventing for customers.”
With that in mind, some of the most undervalued retail stocks to buy now are Alibaba Group Holding Limited (NYSE:BABA), Lowe’s Companies, Inc. (NYSE:LOW), and CVS Health Corporation (NYSE:CVS).
A bustling retail supermarket, stocked with a variety of frozen beverages, soft pretzels, and donuts.
Our Methodology
For this article, we checked the TTM average price-earnings (PE) ratio of the retail industry on CSIMarket, which was 37.11. Next, we identified 60 mid to large-cap stocks with a PE ratio of under 20 using Yahoo Finance and then narrowed down our list to 13 stocks most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them as of Q4 of 2023.
The hedge fund data was taken from Insider Monkey’s database of 933 elite hedge funds. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
13 Most Undervalued Retail Stocks To Buy Now
13. AutoNation, Inc. (NYSE:AN)
PE as of March 26: 7.12
Number of Hedge Fund Holders: 34
AutoNation, Inc. (NYSE:AN) is an automotive retailer that sells new and used cars and offers insurance products and various services like repair, maintenance, automotive finance, and more. As of March 26, AutoNation, Inc. (NYSE:AN) has a PE ratio of 7.12.
According to Insider Monkey’s database, AutoNation, Inc. (NYSE:AN) was part of 34 hedge funds’ portfolios in the fourth quarter of 2023 with a total stake value of $505.792 million. Alyeska Investment Group is the biggest shareholder in the stock and has a position worth $90.811 million as of Q4 of 2023.
Over the past 3 months, AutoNation, Inc. (NYSE:AN) has received Buy ratings from 2 Wall Street analysts. The average price target of $182.50 has an upside of 12.60% from the current price at the time of writing on March 26.
AutoNation, Inc. (NYSE:AN) is one of the most undervalued retail stocks to buy now. Other such stocks include Alibaba Group Holding Limited (NYSE:BABA), Lowe’s Companies, Inc. (NYSE:LOW), and CVS Health Corporation (NYSE:CVS).
12. Tapestry, Inc. (NYSE:TPR)
PE as of March 26: 11.52
Number of Hedge Fund Holders: 40
Tapestry, Inc. (NYSE:TPR) designs and manufactures high-end luxury products like ready-to-wear clothing, outerwear, eyewear, and more. The company carries out its retail operations through retail outlets, freestanding flagship stores, department stores, and more. The company operates three luxury brands, namely Coach New York, Kate Spade New York, and Stuart Weitzman.
On March 7, it was reported that Tapestry, Inc. (NYSE:TPR) furthered its partnership with Bluecore to include its Kate Spade New York brand. Owing to the partnership, Coach and Stuart Weitzman’s marketing growth and strong identification greatly improved previously because of Bluecore. With the expanded partnership, the company hopes to increase retention, garner engagement, and increase purchase orders for all three brands.
As of March 26, Tapestry, Inc. (NYSE:TPR) has a PE ratio of 11.52. In the fourth quarter of 2023, 40 hedge funds held positions in Tapestry, Inc. (NYSE:TPR) worth $800.857 million. This is compared to 41 funds’ positions in the preceding quarter worth $373.788 million. Ken Griffin’s Citadel Investment Group has increased its stake in the company by 4552% to nearly 4 million shares worth $147.150 million and is the most significant shareholder as of the fourth quarter of 2023.
11. eBay Inc. (NASDAQ:EBAY)
PE as of March 26: 9.89
Number of Hedge Fund Holders: 42
eBay Inc. (NASDAQ:EBAY) facilitates retail transactions through its e-commerce marketplace, which operates in 190 markets globally. As of March 26, eBay Inc. (NASDAQ:EBAY) has a PE ratio of 9.89. eBay Inc. (NASDAQ:EBAY) holds 11th position on our list of most undervalued retail stocks to buy now.
On February 27, eBay Inc. (NASDAQ:EBAY) announced an increase in its quarterly dividend of 8% and raised it to $0.27. The dividend was paid out on March 25 to the shareholders of record on March 11. The stock has a dividend yield of 1.94%, as of March 26.
In the fourth quarter of 2023, hedge fund sentiment was positive toward eBay Inc. (NASDAQ:EBAY), which is why it is on our list of the most undervalued retail stocks to buy now. In the quarter, 42 hedge funds held positions in the company, and their stakes amounted to $1.131 billion. This is compared to 37 funds in the previous quarter, with positions worth $827 million. As of December 31, 2023, Harris Associates is the most significant shareholder in the company and has a position worth $199.660 million.
10. The Kroger Co. (NYSE:KR)
PE as of March 26: 19.08
Number of Hedge Fund Holders: 45
The Kroger Co. (NYSE:KR) is a food and drug retailer and runs retail stores under various brands, including Kroger, Ralphs, Dillons Marketplace, Food 4 Less, and more. As of March 26, the company has a market capitalization of $40.601 billion.
As of March 26, the stock has a PE ratio of 19.08. According to our database, The Kroger Co. (NYSE:KR) was part of 45 funds’ portfolios, and the total stake value was $3.5 billion in the fourth quarter of 2023. As of December 31, 2023, Warren Buffett’s Berkshire Hathaway is the biggest shareholder in the company and has a position worth approximately $2.3 billion.
Over the past three months, 6 Wall Street analysts have recommended to Buy The Kroger Co. (NYSE:KR). As of March 26, the stock has an average price target of $58.50 and a high forecast of $70.00. At the time of writing, the stock has surged more than 22% year-to-date.
Oakmark Funds mentioned The Kroger Co. (NYSE:KR) in its fourth quarter 2023 investor letter. Here is what it said:
“The Kroger Co. (NYSE:KR) (U.S.) is the second-largest grocery retailer in America, behind only Walmart. Although the grocery industry is highly competitive, Kroger’s scale advantages allow it to offer a more compelling value proposition than smaller peers and earn higher returns on capital. In recent years, the market has assigned Kroger a lower multiple due to concerns that e-commerce would disrupt traditional brick-and-mortar grocery businesses. However, we believe Kroger’s performance through the pandemic highlighted that its store footprint, distribution infrastructure, technology investments and strong brand all position the company well for a world with higher online grocery adoption. The stock trades for just 10x our estimate of next year’s EPS, which we believe is attractive given Kroger’s competitive positioning and earnings growth outlook. The pending merger with Albertsons could accelerate the company’s earnings growth and produce additional scale advantages. If the merger is not approved, the company will have the capacity to return over 25% of its market cap to shareholders.”
9. Dollar General Corporation (NYSE:DG)
PE as of March 26: 17.54
Number of Hedge Fund Holders: 47
Dollar General Corporation (NYSE:DG) is one of the most famous discount retailers in the US and offers a wide range of products, including but not limited to consumables, seasonal items, home products, etc. The company sells its products under various brands, namely Dollar General, Clover Valley, Smart & Simple, and more. It is the 9th most undervalued retail stock on our list.
On March 15, Morgan Stanley raised the price target on Dollar General Corporation (NYSE:DG) to $170 from $160 and maintained an Overweight rating on the shares. As of March 26, the stock has a PE ratio of 17.54.
Hedge fund sentiment was positive toward Dollar General Corporation (NYSE:DG) in Q4 of 2023. In the quarter, hedge funds with investments in the stock were 47, with positions worth $1.25 billion. This is compared to 38 funds with positions worth $1.13 billion in the third quarter. Holocene Advisors is the top investor in the company and has a position worth $257.206 million as of Q4 of 2023.
Artisan Partners 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.”
8. Bath & Body Works, Inc. (NYSE:BBWI)
PE as of March 26: 12.53
Number of Hedge Fund Holders: 48
Bath & Body Works, Inc. (NYSE:BBWI) is a specialty retailer that sells various products, including body care, soaps, and more under different brands like Bath & Body Works, White Barn, etc.
According to Insider Monkey’s database that tracks 933 elite hedge funds, 48 funds held stakes in Bath & Body Works, Inc. (NYSE:BBWI) in the fourth quarter of 2023, with positions worth $2.6 billion. It is one of the most undervalued retail stocks to buy now.
Based on 8 Wall Street analysts’ ratings over the past three months, Bath & Body Works, Inc. (NYSE:BBWI) has a consensus rating of Moderate Buy. The average price target of $48.69 implies an upside of 1.63% from the last price of $47.91 as of March 26. Bath & Body Works, Inc. (NYSE:BBWI) has a PE ratio of 12.53.
7. Ulta Beauty, Inc. (NASDAQ:ULTA)
PE as of March 26: 19.63
Number of Hedge Fund Holders: 49
Ulta Beauty, Inc. (NASDAQ:ULTA) is a specialty retailer that sells cosmetics, fragrances, skincare products, and more. As of January 2023, the company has 1,355 stores in the US and sells products from over 600 brands.
On March 15, Jefferies raised the price target on Ulta Beauty, Inc. (NASDAQ:ULTA) to $610 from $587 and kept a Buy rating on the shares. As of March 26, the stock has a PE ratio of 19.63.
In Q4 of 2023, 49 hedge funds had investments in Ulta Beauty, Inc. (NASDAQ:ULTA), with positions worth $1.6 billion. This is compared to 44 funds, with positions worth $1.107 billion in the previous quarter. D E Shaw is the most dominant shareholder in the company as of Q4 of 2023. In the quarter, the firm increased its stake by 143% to 360,169 shares worth $176.479 million
Ulta Beauty, Inc. (NASDAQ:ULTA) was mentioned in Carillon Tower Advisers’ Q2 2023 investor letter. Here is what the firm said:
“Ulta Beauty operates a chain of beauty stores. The stock underperformed after the company lowered its margin outlook as it continued to fight higher inventory shrink and other costs. Meanwhile, demand and transaction growth remain strong.”
6. JD.com, Inc. (NASDAQ:JD)
PE as of March 26: 12.64
Number of Hedge Fund Holders: 56
JD.com, Inc. (NASDAQ:JD) is a Fortune Global 500 company and a retail provider through a few of its businesses, namely JD Retail and JD Health. JD Retail is a retailer of various products, including electronics, appliances, etc., while JD Health is one of the largest online healthcare platforms in China.
As of March 26, the stock’s PE ratio is 12.64. In the fourth quarter of 2023, 56 hedge funds had stakes in JD.com, Inc. (NASDAQ:JD), with total positions worth nearly $1.77 billion. This is compared to 53 funds, with positions worth $1.461 billion in the preceding quarter. As of December 31, 2023, Tiger Global Management LLC is the largest shareholder in the company, with a stake worth $254.347 million. JD.com, Inc. (NASDAQ:JD) takes the 6th spot on our list of most undervalued retail stocks to buy now.
On March 6, JD.com, Inc. (NASDAQ:JD) reported earnings for the fourth quarter of 2023. In the quarter, the non-GAAP earnings per American depositary share was $0.75, which beat the market estimates by $0.12. The revenue jumped 3.6% year-over-year to $43.1 billion, and it surpassed the estimates by $1.49 billion.
Some of the top undervalued retail stocks that have caught the attention of investors include JD.com, Inc. (NASDAQ:JD), Alibaba Group Holding Limited (NYSE:BABA), Lowe’s Companies, Inc. (NYSE:LOW), and CVS Health Corporation (NYSE:CVS).
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Disclosure. None. 13 Most Undervalued Retail Stocks To Buy Now is originally published on Insider Monkey.