5 Most Undervalued Retail Stocks to Buy According to Hedge Funds

In this article, we discuss 5 most undervalued retail stocks to buy according to hedge funds. If you want to see more stocks in this selection, check out 12 Most Undervalued Retail Stocks to Buy According to Hedge Funds.

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

Number of Hedge Fund Holders: 55
P/E Ratio as of January 23: 27.68x

Return since January 23: 4%

The TJX Companies, Inc. (NYSE:TJX) is the off-price retailer of apparel and home fashions in the United States and worldwide.

The TJX Companies, Inc. (NYSE:TJX) ranks 5 on our list of 12 most undervalued retail stocks to buy according to hedge funds. The company has announced its sales and operating results for Q3 2023. Its net sales for the period came at $12.2 billion, exhibiting 3% decline against Q3 2022. U.S. comparable store sales surpassed the company’s expectations, and overall pretax margin, merchandise margin, and EPS remained strong.

The company believes that its flexible business model and value proposition should offer tremendous advantages. For Q4 2023, it expects pretax profit margin to be 9.5%- 9.8% and diluted EPS of $0.85 – $0.89. For the full year, it continues to maintain the high-end of its outlook for adjusted pre-tax profit margin. The TJX Companies, Inc. (NYSE:TJX) expects pre-tax profit margin to be in the range of 9.3%- 9.4% and adjusted pre-tax profit margin of 9.8%- 9.9%.

On December 6, Cowen analyst John Kernan upped the price objective on the shares of The TJX Companies, Inc. (NYSE:TJX) to $85 from $84, keeping an “Outperform”. The analyst said that the company’s opportunities across apparel, footwear, accessories, home, beauty, and kids continue to improve.

As of the end of the third quarter, 55 hedge funds tracked by Insider Monkey had stakes in The TJX Companies, Inc. (NYSE:TJX), compared to 49 funds in the previous quarter. The total value of these stakes was $1.90 billion.

Madison Funds, managed by Madison Investment Management, recently commented about The TJX Companies, Inc. (NYSE:TJX) in their fourth-quarter 2022 investor letter. Here is what the fund has to say:

“In the fourth quarter, the Consumer Discretionary sector was the largest positive contributor to our relative performance, in part driven by contributions from The TJX Companies, Inc. (NYSE:TJX). TJX is a leading off-price apparel and home goods retailer. After a couple of years of bumpy performance due to closing stores during the height of the pandemic and absorbing rising supply chain costs, sales and margins have reverted towards more normal levels. We believe TJX’s consumer value proposition remains terrific and they will continue to gobble up market share from department stores over the long term.”

4. Dollar General Corporation (NYSE:DG)

Number of Hedge Fund Holders: 59
P/E Ratio as of January 23: 22.48x

Return since January 23: -25.6%

Dollar General Corporation (NYSE:DG) is the leading discount retailers in the US. The company provides a broad selection of merchandise, such as consumable items, seasonal items, home products and apparel.

Dollar General Corporation (NYSE:DG) has announced a partnership with Ibotta. This will extend the company’s financial services and provide cash back options to all consumers.

Its Q3 2022 net sales saw an increase of 11.1% to $9.5 billion against $8.5 billion in Q3 2021. This growth stemmed from positive sales contributions from new stores and improvement in same-store sales. The company saw same-store sales growth of 6.8% against Q3 2021, supported principally by higher average transaction amount, and modest rise in customer traffic.

Dollar General Corporation (NYSE:DG) expects same-store sales growth of approximately 6% – 7% for Q4 2022. This should result in growth in the upper end of its previously expected range of 4.0% – 4.5% for the full year. The company expects diluted EPS of $3.15 – $3.30 for Q4 2022.

Hedge fund sentiment for Dollar General Corporation (NYSE:DG) spiked in the third quarter of 2022. Of the 920 funds tracked by Insider Monkey, 59 funds reported having stakes in Dollar General Corporation (NYSE:DG), compared to 51 funds in the previous quarter.

Telsey Advisory Group covered the shares of Dollar General Corporation (NYSE:DG) and reduced its price objective from $285.00 to $270.00, giving an “Outperform” rating on the stock on December 2.

3. Walmart Inc. (NYSE:WMT)

Number of Hedge Fund Holders: 68
P/E Ratio as of January 23: 43.89x

Return since January 23: 11.5%

Walmart Inc. (NYSE:WMT) is an American multinational retail corporation. The company operates a chain of hypermarkets, discount department stores, and grocery stores in the US.

Walmart Inc. (NYSE:WMT) has released its results for Q3 2023. It saw strong revenue growth globally, with particular strength in Walmart U.S., Sam’s Club U.S., Flipkart, and Walmex. Its total revenue came in at $152.8 billion, exhibiting 8.7% growth, or 9.8% in constant currency. The company’s global advertising business saw over 30% growth as a result of 40% at Walmart Connect in the U.S. and strength in Flipkart Ads.

Walmart Inc. (NYSE:WMT) has raised its full-year outlook as a result of strong Q3 2022 performance. The company expects consolidated net sales growth of approximately 5.5% year over year. Excluding divestitures, its anticipates achieving consolidated net sales growth of around 6.5% against the previous year. It expects Walmart U.S. comp sales growth, excluding fuel, of around 5.5% year-over-year.

Analysts at UBS Group assumed the coverage on the shares of Walmart Inc. (NYSE:WMT) and they reduced their price objective on the company’s shares from $170.00 to $168.00. They gave a “Buy” rating on the stock on January 6.

As of the end of the third quarter, 68 hedge funds, out of 920 funds tracked by Insider Monkey, reported having stakes in Walmart Inc. (NYSE:WMT).

Leaven Partners, an investment management firm, published its investor letter for Q3 2022 and mentioned Walmart Inc. (NYSE:WMT). Here is what the fund has to say:

“In our last quarterly letter, I briefly mentioned that the consensus estimates for corporate profits appeared to be a bit too sanguine. I referenced a Reuters article that reported, as of June 17, Wall Street expected S&P 500 earnings to grow by 9.6% in 2022, which was up from 8.8% in April and from 8.4% in January. That tune began to change at the end of July and accelerated in August and September, as major players, such as Walmart (NYSE:WMT), has recently issued profit warnings and/or have withdrawn guidance. In response, Wall Street has altered its outlook: lowering third-quarter profit growth to 4.6%[2] from 7.2% in early August and slashing full-year profit growth to 4.5%.”

2. Costco Wholesale Corporation (NASDAQ:COST)

Number of Hedge Fund Holders: 69
P/E Ratio as of January 23: 37.23x

Return since January 23: 9.7%

Costco Wholesale Corporation (NASDAQ:COST) started its operations in 1983, in Seattle, Washington. The company is engaged in the operation of membership warehouses in the US and Puerto Rico, Canada, UK, etc. It also operates e-commerce websites in the US and other countries.

The company’s net sales for Q1 2023 saw a growth of 8.1% to $53.44 billion from $49.42 billion in the last year. Its net income for the quarter came in at $1,364 million ($3.07 per diluted share) against $1,324 million ($2.98 per diluted share) in the previous year.

Costco Wholesale Corporation (NASDAQ:COST) saw net sales of $23.80 billion for the retail month of December, the five weeks ended January 1. This exhibits 7.0% growth from $22.24 billion in the previous year. For the 18 weeks ended January 1, its net sales were $82.16 billion, exhibiting 7.6% growth from $76.34 billion in the prior year.

Analysts at BMO Capital Markets initiated their coverage on the shares of Costco Wholesale Corporation (NASDAQ:COST) and they reduced their price target from $600.00 to $555.00 on December 9.

Hedge fund sentiment is strong for Costco Wholesale Corporation (NASDAQ:COST). The company has 69 hedge funds with stakes in it as of the end of the third quarter, compared to 64 funds in the previous quarter.

Madison Funds, managed by Madison Investment Management, published its investor letter for Q4 2022 and mentioned Costco Wholesale Corporation (NASDAQ:COST). Here is what the fund said:

“Costco Wholesale Corporation (NASDAQ:COST) stock fell after November sales results showed a slowing consumer. The slower November sales were followed by a slight first quarter miss with lower-than-expected margins. Costco commented that they are not seeing trade-down but private label penetration has increased modestly. Traffic continues to be positive, and Costco remains well-positioned in a more challenging macro environment due to its strong value proposition.”

1. Amazon.com, Inc. (NASDAQ:AMZN)

Number of Hedge Fund Holders: 269
P/E Ratio as of January 23: 85.54x

Return since January 23: 33%

Amazon.com, Inc. (NASDAQ:AMZN) engages in the retail sale of consumer products and subscriptions in North America and other countries.

Amazon.com, Inc. (NASDAQ:AMZN) has released its financial results for Q3 2022. The company’s net sales saw 15% growth to $127.1 billion in Q3 2022 against $110.8 billion in Q3 2021. For Q4 2022, it anticipates its net sales of between $140.0 billion- $148.0 billion, or to grow in the range of 2%- 8% against Q4 2021. Its operating income is anticipated to be between $0 – $4.0 billion against $3.5 billion in Q4 2021.

UBS Group assumed the coverage of Amazon.com, Inc. (NASDAQ:AMZN) and it has reduced its target price on the shares of Amazon.com, Inc. (NASDAQ:AMZN) from $165.00 to $125.00 on January 4.

At the end of the September quarter, 269 hedge funds of the 920 funds in Insider Monkey database reported having stakes in Amazon.com, Inc. (NASDAQ:AMZN). The collective value of these stakes was $34.6 billion.

Here is what Polen Capital has to say about Amazon.com, Inc. (NASDAQ:AMZN) in its fourth-quarter 2022 investor letter:

“If you look at a company like Amazon.com, Inc. (NASDAQ:AMZN) (the largest weighting in the Portfolio), we expect the company to generate accelerating earnings growth through the year as revenue growth accelerates from the challenging 2022 period and as the company makes more progress on its ongoing cost-cutting initiatives. Over a longer period, Amazon’s operating margins should continue to expand even further as a positive mix shift that has already been taking place, continues. The fastest growing parts of Amazon; Amazon Web Services (AWS), Fulfillment by Amazon, Advertising, and Prime subscription revenues, are much higher margin than the core e-commerce business

Amazon and PayPal were similar, in our view, in that both companies were “COVID beneficiaries” as their businesses accelerated in 2020 and 2021 and are now growing much slower on those tougher comparisons. Many, including us, were hopeful that growth would begin to reaccelerate in 4Q’22 (there were signs of this in 3Q’22), but both companies gave cautious guidance for the holiday quarter as consumer spending came under pressure. That said, we see both companies growing earnings above normal in 2023, even if a recession occurs. According to our research, both companies should see a return to more normal revenue growth as comparisons ease and both companies also undergo significant cost reduction plans, which should allow for strong incremental profit margins. Amazon, in particular, should see a very sharp rebound in margins.”

You can also take a peek at 11 Safe Consumer Stocks To Buy and 13 Best Consumer Staples Dividend Stocks To Buy