In this article, we will look at the 7 Cheap Reliable Stocks to Invest in.
Overview of the American Retail Segment
Retail sales in the United States rose unexpectedly in August. According to a report by the Commerce Department, retail sales rose considerably faster than analysts’ estimates from July. They increased 2.1% year-over-year in August, with online sales rising 1.4% after falling 0.4% in July. In addition, gasoline station sales fell by 1.2%, reflecting lower pump prices. When combined with a decreased unemployment rate, this retail landscape caused the Federal Reserve to issue a half-percentage-point interest rate cut.
While auto dealerships experienced a decline in receipts, strength in online purchases balanced the level, suggesting a solid footing for the economy through the most part of Q3 2024. After the data, the Atlanta Fed raised the Q3 2024 GDP growth estimate from 2.5% to 3.0% annualized rate estimate. The economy grew at 3.0% in Q2.
Holiday Outlook For US Retailers
Sales in the holiday season typically account for more than half of the annual revenue of US retailers. According to estimates by the Boston Consulting Group, US retailers will likely see a “measured” holiday cheer in the upcoming holiday season. Although signs like cooling inflation point to strong consumer spending, several other factors are likely to take a toll on overall spending.
According to a Challenger, Gray & Christmas report, US retailers are likely to hire fewer holiday workers this holiday season compared to 2023. A softer labor market and uncertain consumer spending trends are the primary drivers behind this trend. In addition, a Deloitte forecast revealed that US holiday sales will likely grow at their slowest rate in six years. Depleting savings is making shoppers more conscious this holiday season.
The 2024 Holiday Outlook Survey by Boston Consulting Group shows that while 28% of consumers plan to increase their spending compared to 2023, 27% plan to decrease it. 45% plan to spend the same amount. There are reasons behind these split trends. Real consumption has continued to increase post-pandemic, with household incomes and balance sheets getting strong in American households. In spite of these positive growth indicators, global military conflicts, ongoing geopolitical tensions, and the upcoming 2024 presidential elections are painting an environment of split attention for consumers.
Despite its recent cooling, inflation has resulted in high consumer staple prices, restricting budgets for holiday shoppers. These trends are also leading to increased inclination towards deal-seeking and intentional channel selection.
Whatever the state of the economy, defensive retailers manage to generate stable revenues and are thus reliable growers. With these trends in view, let’s look at the top 7 cheap reliable stocks to invest in.
7 Cheap Reliable Stocks to Invest In
Our Methodology
We first consulted stock screeners from Finviz and Yahoo Finance, along with online rankings, to create an initial list of 15 publicly traded retail companies with a forward P/E ratios of less than 23 (the broader market is trading at a forward P/E of 23, as per data from WSJ). From this list, we selected the 7 stocks with the highest number of hedge funds holders as of Q2 2024, and used that as our ranking metric.
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 Cheap Reliable Stocks to Invest In
7. The ODP Corporation (NASDAQ:ODP)
Forward P/E: 6.69
Analysts’ Upside Potential: 22.33%
Number of Hedge Fund Holders: 26
The ODP Corporation (NASDAQ:ODP) is a retailer specializing in business supplies, products, services, and digital workplace technology solutions for small, medium-sized, and enterprise businesses. It operates in four segments: the ODP Depot Division, the ODP Business Solutions Division, the Varis Division, and the Veyer Division. The Office Depot Division provides retail consumer and small business products and services through an omnichannel platform.
The ODP Business Solutions Division sells the company’s privately branded and nationally branded office supplies and adjacency products and services to customers. In contrast, the Veyer Divison specializes in B2B and consumer business service delivery, with fulfillment, distribution, purchasing, and global sourcing. The company’s Varis Division encompasses a B2B-centric digital commerce platform that offers businesses the procurement controls and visibility required to operate.
The ODP Corporation (NASDAQ:ODP)’s performance was affected by the ongoing macroeconomic headwinds, but it is undertaking several initiatives to end 2024 with a greater revenue velocity. Its focus lies on a strategic transformation of its top-line growth trajectory in its core business. It is driving business transformation and AI process focus across its entire enterprise to fuel future growth and boost capital allocation opportunities. Project Core is one such initiative, focused on sharpening the company’s core focus and streamlining operations.
The company has also implemented the Power of 1 initiative to drive growth. This initiative will add value to customers by offering one more product or suite of products to help them succeed. An example of this strategy is the recent sizable order recently awarded to the company for standalone air conditioning units for a government entity. While that is not a service the company specializes in, it highlights its consumer base’s trust in the company to source and deliver a solution that meets customer needs. Such initiatives give the company a competitive advantage, as they are positioning it to build a stronger revenue velocity through the second half of 2024 and into 2025.
Apart from investments in its core operations, The ODP Corporation (NASDAQ:ODP) repurchased a significant amount of shares, amounting to more than $140 million of stock in the second quarter of 2024. This also includes more than $170 million under the recently announced authorization. The company is continuing to balance its capital allocation strategy, keeping market conditions and business performance in check.
6. Dollar Tree, Inc. (NASDAQ:DLTR)
Forward P/E: 13.12
Analysts’ Upside Potential: 13.39%
Number of Hedge Fund Holders: 38
Dollar Tree (NASDAQ:DLTR) is a Virginia-based discount retail store that operates more than 15,000 stores across the USA, supported by a logistics network of 24 distribution centers. Dollar Tree (NASDAQ:DLTR) holds a considerable market advantage due to its highly discounted prices on an elaborate array of merchandise. Its convenient neighborhood stores are quite popular among its consumer base. In addition, the company runs on a differentiated growth model, bolstered by a long-term strategy of store growth acceleration and multi-price expansion.
Its multi-expansion strategy greatly resonates with its audience. This can be corroborated by the 1,600 stores the company recently converted into its newest in-line format. These converted stores saw a considerable sales increase, with comps growing by 4.6% in Q2 2024 compared to less than 0.5% in other formats.
The company also considers the expansion of its in-line multi-price across the Dollar Tree (NASDAQ:DLTR) portfolio to be a major long-term growth driver. Less than 15% of the company’s SKUs are multi-price at the present. But the higher gross profit dollars per item generated by this growing assortment will not just drive comp but also produce a significant lift to store economics in the long run.
Dollar Tree (NASDAQ:DLTR) reopened 85 of the recently acquired former 99 Cents stores in Q2, with plans to open 20 additional stores immediately. Since these 99 Cents Only stores are located in high-quality, proven stores in strong markets, they are expected to boost the company’s profitability and bring great growth potential. The remaining 56 stores are expected to reopen by the end of 2024, expanding the company’s footprint and boosting profitability.
Dollar Tree ranks sixth on our list of the 7 cheap reliable stocks to invest in. It currently trades at a forward P/E of 13.12 at a 26.76% discount to its sector.
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.”
