In this article, we will look at the 7 Best Department Store Stocks to Buy According to Hedge Funds.
Holiday Season Trends in the Retail Industry
With the holiday season approaching, discussions and concerns about expected consumer spending are increasing. According to Deloitte’s annual holiday survey, shoppers are feeling more optimistic despite concerns about inflation, and are planning to increase their holiday spending by 8% year over year. On October 19, Brian McCarthy, Principal of Retail Strategy and Transformation at Deloitte, joined Brad Smith on Yahoo Finance’s Wealth! to discuss what he calls an expected record-breaking shopping season.
As per Deloitte’s latest holiday retail survey, consumers are planning to spend more money in this year’s holiday season, primarily due to a “rosier economic outlook.” He says that we are seeing a 9 percentage point increase in positivity towards the economy’s future. In addition, the overall consumer perception of higher prices is also a factor, with around 70% of shoppers believing that their prices for gifts in 2024 will be higher than in 2023.
Retail executives are also optimistic about the upcoming season, with 80% expecting to see stronger sales both online and in brick-and-mortar. As per the survey, consumers plan to spend a record-high average of around $1,778 this year, with the average consumer spending experiencing an 8% increase from the 2023 survey. These trends are expected to emerge despite the inflationary and price pressures that some consumers have cited. McCarthy told Yahoo Finance:
“We’re seeing after this year of frugality and restraint, consumers are feeling a bit more optimistic about the economy. They’re planning to have a very festive holiday season.”
The Brand Loyalty Crisis of the Season
An interesting brand loyalty crisis is also emerging this holiday season. Consumers are looking for better prices and deals instead of going back to the brands they always shop at. They are looking for the best value and are generally inching away from brand loyalty, prioritizing quality and price over brand names and tags. According to McCarthy, consumers seek quality, value, and variety when they go holiday shopping. He says that:
“With the perception of higher prices still top of mind, consumers are really caught between trying to stretch their wallets and being festive and so this really means they’re torn between seeking value and remaining loyal.”
He further says that around two-thirds of consumers are expected to switch brands if they find the price too high, and around 50% are willing to switch retailers to save. In addition, 78% of shoppers plan to participate in promotional events this October and November. Trends also show that privately labeled brand sales are expected to grow faster than national brand sales this year.
He suggests that retailers must ensure that they provide good quality, good value price points, and a variety of selection that attracts consumers. He also offers advice to consumers looking to save some dollars without slashing items from their holiday list, saying that:
“Shoppers are encouraged to explore multiple retailers to look for a competitive deal or a price point that they think is going to work for them.”
He adds,
“I have found AI is a really interesting thing to start asking for where you may find particular products or promotional deals so you can use technology to be a bit more savvy that way.
We recently published an article on the 10 Cheap Retail Stocks to Buy According to Analysts. Here is an excerpt from the article:
“According to the WTW Global Retail Survey for 2024, around 52% of retailers this year expect increased profitability in the coming two years. In addition, approximately 48% of retailers are looking to leverage artificial intelligence in their operations to offer their customers a personalized and efficient shopping experience. However, with more and more businesses turning towards AI, around 43% of the respondents voiced concerns about high cybersecurity risks likely to arise with increasing reliance on new technologies. Despite the risks, a majority of retailers are incorporating AI into their operations, streamlining and expediting their functioning”.
With these trends in mind, let’s examine the 7 best department store stocks to buy according to hedge funds.
7 Best Department Store Stocks to Buy According to Hedge Funds
Our Methodology
To compile a list of the 7 best department store stocks to buy according to hedge funds, we consulted the Finviz and Yahoo Finance stock screener to compile a list of the top 15 department store stocks. We then choose the top 7 stocks with the most number of hedge funds. The list of the 7 best department store stocks to buy according to hedge funds is arranged in ascending order of number of hedge fund holders as of Q2 2024.
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).
7 Best Department Store Stocks to Buy According to Hedge Funds
7. Nordstrom, Inc. (NYSE:JWN)
Number of Hedge Fund Holders as of Q2 2024: 34
Nordstrom, Inc. (NYSE:JWN) offers private-label merchandise for women, men, and children, with a primary focus on apparel, beauty, shoes, accessories, home goods, and more items.
The company has strong financials, delivering solid fiscal Q2 2024 results with net sales worth $3.8 billion. Its earnings per share came up to $0.96, with the company growing new sales along with comparable sales and expanded margins. Customers are responding positively to the newness of the company’s brands, and momentum in its digital business is continuing to grow, with net sales growth of 6%.
Fiscal Q2 2024 saw progress across three of Nordstrom, Inc.’s (NYSE:JWN) priorities, including optimization of its operations, banner growth, and momentum building across Nordstrom Rack. Driving Nordstrom’s banner growth is a key area of focus for the company. It is supporting it by offering a compelling selection of merchandise, along with exceptional customer experience and service. The company is striving to offer a more consistent brand offering across its stores, ensuring that it has relevance, newness, and depth of merchandise.
6. Dollar Tree, Inc. (NASDAQ:DLTR)
Number of Hedge Fund Holders as of Q2 2024: 38
Dollar Tree Inc. (NASDAQ:DLTR) sells a variety of merchandise, ranging from snacks, food, and decor to automotive, electronics, glassware, toys, and much more. It operates more than 15,000 stores in the US and Canada, supported by a nationwide logistics network comprising 24 distribution centers. The company offers exceptionally discounted merchandise in convenient neighborhood stores, contributing to its popularity among consumers.
Dollar Tree (NASDAQ:DLTR) dealt with interest rates, inflation, and other macro pressures at the beginning of fiscal Q2 2024, which affected consumer buying behavior across the company. However, despite these near-term pressures, it is confident in its ability to compete and win. The company is offering customers exceptional values aligning with the current environment. It boasts a differentiated business model and a long-term growth strategy of multi-price expansion and store growth acceleration, two factors that give it a competitive edge.
Dollar Tree (NASDAQ:DLTR) is furthering its growth strategy by reopening around 85 former 99 Cents Only locations as Dollar Trees. It plans to reopen more than 50 remaining locations by the end of the year. These 99 Cents Only locations are high-quality, proven stores located in strong markets and have significant growth potential. They mark the company’s expansion across California and the Southwest and are attaining significant positive approval from its customer base.
Here is what Madison Investors Fund stated regarding Dollar Tree, Inc. (NASDAQ:DLTR) in its Q2 2024 investor letter:
“Dollar Tree, Inc. (NASDAQ:DLTR) underperformed following a plethora of concerns: weakness surrounding the low-end consumer, pricing actions by peers, and disappointing sales at the core Dollar Tree banner. In addition, the significant news that management has placed the struggling Family Dollar banner under strategic review was received skeptically by investors. Despite these concerns, we are encouraged by the long-term prospects of the multi-price initiatives at the Dollar Tree banner and are entirely supportive of management’s effort to enhance value by evaluating alternatives for Family Dollar. We also see a comfortable margin of safety in the shares at the current price.”
