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.”
5. Dollar General Corporation (NYSE:DG)
Forward P/E: 14.41
Analysts’ Upside Potential: 12.15%
Number of Hedge Fund Holders: 42
Dollar General (NYSE:DG) operates a chain of over 20,000 discount retail stores across the US and Mexico. Its stores offer discounted deals and reduced prices on various offerings, including clothing, grocery items, kitchenware, pharmaceuticals, outdoor furniture, health supplies, and more. Its discounted rates and a large number of stores give it a competitive advantage, especially since it is focusing on a fast rural expansion of its chain. Dollar General (NYSE:DG) is planning to open more than 800 stores across the US and remodel approximately 1,500 locations while relocating 85 stores in 2024.
The company is also prioritizing a timely and accurate supply chain, customer-centric merchandising, and in-store execution to boost its profitability. It is centering efforts around strengthening its connection with its customer base by ensuring that they have a positive experience. To do so, Dollar General has increased employee presence at the front of their stores for increased engagement that facilitates a positive checkout experience. It is focusing labor hours on perpetual inventory management to boost its in-stock levels and facilitate sales growth.
The company’s merchandising and supply chain teams are also putting in efforts to expedite in-store progress, helping simplify operations for its teams. All these efforts are showing significant year-over-year improvements in the company’s in-stock levels, strengthening its position in the industry.
In addition, Dollar General Corp (NYSE:DG) is one of the companies in a good position to benefit from the US Federal Reserve’s September interest rate cuts. The cuts are anticipated to increase liquidity in the market, which can drive sales by benefiting customers.
Artisan Value Fund 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.”
4. Macy’s, Inc. (NYSE:M)
Forward P/E: 5.42
Analysts’ Upside Potential: 14.40%
Number of Hedge Fund Holders: 44
Macy’s (NYSE:M) is an omnichannel retail company with a brand portfolio containing Macy’s, Bloomingdale’s, and Bluemercury. It sells various merchandise under its brands, including apparel and accessories, cosmetics, home furnishing, and other consumer goods. Macy’s (NYSE:M) operates stores in 43 states in the US, along with the District of Columbia, Guam, and Puerto Rico. It also operates in Kuwait and Dubai under a license agreement with Al Tayer Insignia. In addition, the company offers several private label brands, including Alfani, Aqua, Epic Threads, Hudson Park, Hotel Collection, And Now This, and others.
Macy’s (NYSE:M) ranks among the retailers affected by the recent changing consumer patterns. However, the company identified such changes promptly, aligning its assortments and shifting its marketing calendar to balance its operations. It also delivered more personalized messages and promotions across its brands and categories, investing in proven areas of product strength and newness. The company slashed exposure to areas affected by softer demand. Such efforts shifted its course of business by the end of Q2 2024, highlighting its ability to quickly analyze trends and identify areas of opportunity.
The comprehensive brand portfolio under Macy’s (NYSE:M) lends it a considerable competitive advantage. The company experienced substantial growth in fragrances and green shoots in women’s ready-to-wear apparel, including Steve Madden, Donna Karan, Aves Les Filles, and others. Its customer base also responded positively to the ongoing private brand ready-to-wear reimagination, including elevated fashion and quality in our heritage labels.
To continue building on this positive momentum in this important category, Macy’s (NYSE:M) has been introducing new market and private brands that align more closely with customer demand, prioritizing appropriate investments to support growth. The stock currently trades at a forward P/E of 5.42 at a 67.62% discount to its sector. It ranks fourth on our list of the top cheap reliable stocks to invest in.
3. Target Corporation (NYSE:TGT)
Forward P/E: 16.31
Analysts’ Upside Potential: 16.08%
Number of Hedge Fund Holders: 52
Target (NYSE:TGT) is a popular American retail corporation that operates a chain of discount department stores and hypermarkets with a comprehensive list of offerings, ranging from clothing and groceries to electronics, entertainment, sports, and other general merchandise. It currently operates around 2,000 stores across the country, with expansion plans to add 300 new stores to the chain in the coming decade. It opened four new stores in Florida, South Carolina, and Texas in August alone.
The stock currently trades at a forward P/E of 16.31 at a 8.94% discount to its sector. It sports a consensus Buy rating among analysts, with its current average price target of $155.07 implying an upside of 16.08% from current levels. The company is focusing on strong execution and retail fundamentals. It is expanding its operating margin rate, intending to move beyond its pre-pandemic annual rate of 6%. In addition, Target (NYSE:TGT) is prioritizing continued disciplined capital deployment.
Target (NYSE:TGT) is running on strong fundamentals. Its Q2 comparable sales grew by 2% at the top end of its guidance range. Its EPS of $2.57 was also higher than its guidance, representing more than 42% growth from 2023. This growth was driven primarily by traffic, highlighting the benefits of its several guest-focused initiatives.
In addition, Target’s (NYSE:TGT) store and digital channels also experienced growth in Q2. It experienced single-digital growth in its digital comps, and even faster growth in same-day services led by Target Circle 360 and Drive Up. Target’s (NYSE:TGT) same-day services give it a competitive advantage, accounting for over two-thirds of its digital sales. Drive Up remains the most significant contributor, generating sales of more than $2 billion in Q2 and more than $4 billion so far in 2024.
Carillon Eagle Growth & Income Fund stated the following regarding Target Corporation (NYSE:TGT) in its Q2 2024 investor letter:
“Target Corporation’s (NYSE:TGT) sales continue to feel the consumer softness in discretionary goods. In addition, while margins are recovering, they are not up to expectations. Encouragingly, sales are sequentially increasing, and comparable sales are expected to get easier as Target enters the back half of the year.”
2. Albertsons Companies, Inc. (NYSE:ACI)
Forward P/E: 7.79
Analysts’ Upside Potential: 30.22%
Number of Hedge Fund Holders: 59
Albertsons (NYSE:ACI) is a food and drug retailer in the US that operates retail stores selling general merchandise, grocery items, health and beauty care products, fuel, pharmacy, and other items and services through its brick-and-mortar stores and digital channels. It operates around 2,269 stores across 34 stores in the US under 20 banners. These include Albertsons, Vons, Randalls, Carrs, Acme, Star Market, Market Street, Kings Food Markets, Haggen, and others.
In addition, the company operates 1,336 in-store branded coffee shops, 1,725 pharmacies, 402 fuel centers, 19 manufacturing facilities, and several other digital platforms. Its brand portfolio includes Open Nature, Signature Care, Signature SELECT, Primo Tabglio, Signature Cafe, Signature Reserve, and others.
Albertsons (NYSE:ACI) ranks on our list of 7 cheap reliable stocks to invest in because of its several strategic initiatives in response to negative market conditions, highlighting its resilience. The company is looking to reinvigorate its growth metrics, and is increasingly investing in its Customers for Life Strategy. The Customer for Life strategy places customers at the center of all its operations, driving growth in loyalty members by launching its simplified “for U” loyalty program. It is also investing in its omnichannel and digital capabilities to drive continuous year-over-year growth.
The company is making substantial progress in its online presence, with digital sales growing by 23%. It is improving its liquidity and financials, with cash growing to $291.1 million and dwindling debt. Albertsons (NYSE:ACI) is also focusing attention on CAPEX, investing $543 million for the purpose. It opened a new location and remodeled 17 store locations in the process, ensuring increased customer engagement.
In the second quarter of 2024, 59 hedge funds had stakes in Albertsons Companies, Inc. (NYSE:ACI). As of Q2 2024, Stephen Feinberg’s Cerberus Capital Management is the company’s top shareholder and has a position worth $3 billion, as per our database.
1. CVS Health Corporation (NYSE:CVS)
Forward P/E: 8.97
Analysts’ Upside Potential: 6.58%
Number of Hedge Fund Holders: 60
CVS (NYSE:CVS) is a retailer that operates in four segments: health care benefits, health services, pharmacy & consumer wellness, and corporate/other. Its healthcare benefits segment offers various voluntary, traditional, and consumer-directed health insurance products and related services. These include medical, pharmacy, medical management capabilities, dental and behavioral health plans, Medicare Advantage, Medicaid health care management services, and Medicare supplement plans.
The Health Services segment specializes in a complete range of pharmacy benefit management solutions and delivers healthcare services in its medical clinics, at home, and virtually, offering provider enablement solutions. In contrast, the Pharmacy & Consumer Wellness segment dispenses prescriptions in retail pharmacies. It also provides diagnostic testing, pharmacy patient care programs, and vaccination administration.
All standalone stores operated by CVS (NYSE:CVS) across its national footprint are profitable, reflecting its strong operational model, business leadership, and exceptional customer service. Total revenue reached more than $91 billion in the first half of 2024, along with $8 billion in operating cash flow. Continuing its growth model, CVS expects membership growth in its commercial business in 2025, primarily driven by new business wins and strong retention.
CVS has identified a multi-year opportunity to save $2 billion. This initiative will be driven by optimizing and streamlining its processes and operations, accelerating the use of artificial intelligence and automation across its operations, and continuing to rationalize its business portfolio. The savings will allow the company to invest in new opportunities and businesses, further driving growth and profitability.
The stock currently trades at a forward P/E of 8.97 at a 58.28% discount to its sector. Its median price target of $58.64 implies an upside of 6.58% from current levels.
Ariel Global Fund stated the following regarding CVS Health Corporation (NYSE:CVS) in its Q2 2024 investor letter:
“American healthcare company, CVS Health Corporation (NYSE:CVS), also declined following disappointing earnings results and a subsequent reduction in full year guidance. The miss was primarily due to increased utilization of Medicare Advantage plans and weakness in the health services segment driven by the loss of a large client and continued pharmacy client price improvements. In response, management reiterated its focus on improving margins and enhancing its positioning in Medicare Advantage. CVS believes the program can remain an attractive business for Aetna and CVS Health over time and will construct its bid for 2025 as a multi-year repricing opportunity across plan level benefits. Meanwhile, CVS continues to return capital to shareholders through dividends and a recent accelerated share repurchase transaction”.
Overall, CVS ranks first among the 7 cheap reliable stocks to invest in. While we acknowledge the potential of retail companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CVS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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