We recently published a list of 7 Cheap Small-Cap Stocks To Buy Now. In this article, we are going to take a look at where Abercrombie & Fitch Co. (NYSE:ANF) stands against the other cheap small-cap stocks to buy now.
At the September Fed meeting, the Federal Open Market Committee (FOMC) decided to lower its policy interest rate by 50 basis points to support the economy. Chairman Jerome Powell stated that this move is aimed at maintaining labor market strength while reducing inflation.
He also noted that future rate adjustments will depend on incoming economic data. The Fed’s economic projections indicate a federal funds rate of 4.4% by year-end, with further rate cuts expected as inflation falls and unemployment edges up slightly.
The market seems quite happy with the current cut cycle and expects more to come. According to CME’s Fed-watch tool, the market is expecting another 25 to 50 bps cut at the November meeting. As of September 27, 53.3% interest rate traders expect a 50 bps cut while the rest are anticipating a 25 bps cut.
While the market had gotten used to the high rates and was still thriving, the lower fed funds rates have given a much-needed boost as the broader market reached new highs.
Fed Easing Cycle Boosts Optimism for Small Cap Stocks
Greg Tuorto, a portfolio manager at Goldman Sachs Asset Management, recently joined Catalysts on Yahoo Finance and discussed the outlook for small-cap stocks in light of recent Federal Reserve rate cuts and broader economic conditions.
He highlighted several supportive factors for small caps, including a stable U.S. economy and opportunities in sectors like technology, healthcare, and consumer industries. Despite recent underperformance, he believes small caps are positioned for a rebound, driven by strong earnings growth rather than multiple expansions.
Tuorto also emphasized the potential for small caps to outperform large caps in 2025, given that their earnings outlook appears more favorable. He sees the ongoing Fed easing cycle as a tailwind and suggests that businesses have adapted well to the higher rate environment and could benefit significantly from any further rate cuts. While Tuorto isn’t focused on the exact number of cuts, he sees the broader trajectory as a positive catalyst.
The portfolio manager is especially bullish on software stocks and noted that lower rates make this sector more attractive, and he expects more IPO activity in the space in the coming months. For the future, Greg Tuorto also believes that there will be another cut probably in the near future.7 Cheap Small-Cap Stocks To Buy
Our Methodology
For this article, we used the Finviz stock screener to identify nearly 150 small-cap stocks with positive forward price-to-earnings ratios. Our definition for small-cap stocks was stocks between $1 billion to $10 billion. Next, we narrowed our list to stocks whose earnings are expected to grow this year according to analysts, compared to the prior year, and have forward PE ratios below 15. Finally, we chose 7 stocks that were most widely held by institutional investors. The 7 cheap small-cap stocks to buy are listed in ascending order of their hedge fund sentiment, 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).
Is Abercrombie & Fitch Co. (NYSE:ANF) A Cheap Small-Cap Stock To Buy Now?
Abercrombie & Fitch Co. (NYSE:ANF)
PE Ratio (FWD): 13.96
Number of Hedge Fund Holders: 48
Abercrombie & Fitch Co. (NYSE:ANF) started as an outdoor specialty retailer in 1892. It has now grown into an international lifestyle brand, famous for its youthful and casual style, primarily catering to teens and young adults but also has offerings for the rest of the population as well. It also operates several sub-brands, such as Abercrombie Kids, Hollister Co., and Gilly Hicks, which offer a wide range of products, including loungewear, activewear, outerwear, sleepwear, and personal care items.
As of 2023, the company operates over 760 stores across the Americas, Europe, Asia, and the Middle East and also has a significant online presence. On its investor day in June 2022, it announced its “Always Forward Plan,” which aims to accelerate global growth and enhance shareholder value through a focus on omnichannel strategies and digital expansion.
The plan set financial targets for 2025, with projected revenues between $4.1 billion and $4.3 billion, and a sustainable operating margin of 8% or higher. Long-term goals include reaching $5 billion in revenue with a 10% operating margin.
The Always Forward Plan was built on three core strategies which include expanding brand growth, accelerating a company-wide digital shift, and maintaining financial discipline. Abercrombie & Fitch and Abercrombie Kids aim for 6-8% sales growth, while Hollister expects 0-2%, and Gilly Hicks is targeting a 15% growth rate by 2025. The company also plans to generate a minimum of $600 million in free cash flow by fiscal 2025.
Abercrombie & Fitch (NYSE:ANF) tops our list of 7 cheap small-cap stocks to buy now as its stock was held by 48 hedge funds, at a combined value of $1.306 billion, according to Insider Monkey’s database.
As of September 27, the company is trading at cheap forward earnings multiple of 13.96x, at a nearly 20% discount to its sector median. Moreover, analysts expect significant growth in the company’s EPS with a nearly 65% increase in its 2024 earnings compared to the last year.
For the stock price, according to the consensus estimates of 10 analysts, Abercrombie & Fitch (NYSE:ANF) has an average price target of $190, representing an upside of 31.49% from current levels.
Carillon Tower Advisers stated the following regarding Abercrombie & Fitch Co. (NYSE:ANF) in its Q2 2024 investor letter:
“Abercrombie & Fitch Co. (NYSE:ANF) is a global multi-brand omnichannel specialty retailer that offers a broad assortment of apparel, personal care products, and accessories for men, women and kids. The stock was a strong performer during the quarter following an impressive earnings report that exceeded expectations and raised guidance amid a rough patch for the retail industry. The management team has made powerful strides in reenergizing the brand and transforming the concept to a different and larger audience.”
Overall, ANF ranks 1st on our list of cheap small-cap stocks to buy now. While we acknowledge the potential of ANF as an investment, 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 ANF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
