We recently compiled a list of the 7 Best Department Store and Discount Retailer Stocks to Buy. In this article, we are going to take a look at where Macy’s, Inc. (NYSE:M) stands against the other department store and discount retailer stocks.
Consumer Sentiment Across the US
Consumer sentiment in the US is recovering: it rose to a six-month high in August as the positive ripples of optimism over the economic outlook spread across the country. This improved consumer confidence reading was reported by the Conference Board at the end of August, highlighting the perception that business conditions across the country are likely to improve over the coming six months. The results also suggested that the chances of an oncoming recession are declining. The consumer confidence index by the Conference Board rose to 103.3 in August from 101.9 in July, its highest level since February.
However, Americans are still anxious. Concerns about the labor market are soaring, especially after the unemployment rate in the country rose to 4.3% in July, almost a three-year high. The Federal Reserve appears to be mirroring public concerns about the labor market. In a highly anticipated speech to the Kansas City Fed’s annual economic conference, Jerome Powell, Federal Reserve Chair, said that increasing cooling in the job market would be unwelcome. He expressed optimism about inflation rates in the country, claiming that they appeared within the 2% target by the US Central Bank.
“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
The rapid increase in unemployment is mostly driven by slow hiring, rather than rising layoffs. However, Powell claimed that:
“We do not seek or welcome further cooling in labor market conditions,” he said. “We will do everything we can to support a strong labor market as we make further progress toward price stability.”
Consumer prices in the US rose moderately in July. A report released by the Labor Department at the end of August marked the third consecutive month of tame consumer price readings. Producer prices rose slightly in August to suggest a downward trend for inflation. Reports of falling inflation are running alongside business anecdotes claiming that consumers are employing bargain-hunting tactics to push back against high prices. Consumers are also reducing their purchases and are switching to lower-priced substitutes, which is a promising trend for discount retailers with competitive pricing. Moreover, with rate cuts around the corner, these stocks are poised to do well.
Our Methodology
We used the Finviz stock screener to identify stocks in the department stores and discount retailers businesses. We then shortlisted the stocks that were the most widely held by hedge funds, as of Q2 2024. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them.
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).
A customer in a store trying on fashionable apparel and accessories for purchase.
Macy’s, Inc. (NYSE:M)
Number of Hedge Fund Holders: 44
Macy’s (NYSE:M) is an omni-channel American retail company that operates department stores such as accessories and apparel for adults and children across the globe. It also operates prominent retail brands such as Bloomingdale’s and Bluemercury, which have been the primary drivers of the company’s growth.
Macy’s (NYSE:M) stock price plummeted after acquisition plans by potential suitors Brigade Capital, an investment management firm, and Arkhouse Management, a real estate investing organization, fell through. Despite the stumble, Macy’s (NYSE:M) is working to maximize profitability by closing down stores across the US with inadequate sales and opening small-format stores in their place. The company plans to open around 30 new small-format stores through 2025.
In the recent quarter, Macy’s (NYSE:M) experienced strength in fragrances and women’s ready-to-wear apparel, including the Steve Madden, Donna Karan, Avec Les Filles, and French Connection brands. High-quality fashion and increased consumer engagement also lead to high public interest in the ongoing private brand ready-wear re-imagination.
The company is also targeting weaknesses in men’s apparel, home, and handbags. In men’s apparel, it is focusing its attention on the contemporary, which it claims to be in a bright spot for growth. Macy’s (NYSE:M) also launched a new private brand that specifically targets customers under 40 in an attempt to elevate consumer engagement. It is also introducing diversity in its handbags collection to grow its portfolio.
Over the past three years, the company’s annual revenue has grown at a CAGR 2.34%. Total Q2 2024 revenue of $5.10 billion also underwent a 1.15% one-year increase when compared to last year. The stock is currently trading at a P/E ratio of 5.68 at a 64% discount to its sector. Macy’s (NYSE:M) median price target of $15.57 presents a 9.18% upside from current levels. 44 hedge funds hold stakes in Macy’s (NYSE:M) as of Q2 2024, with Arrowstreet Capital being the most prominent shareholder with 9.5 million shares. It ranks fourth on our list of the 7 best department store and discount retailers stocks to buy.
Overall M ranks 4th on our list of the best department store and discount retailer stocks to buy. While we acknowledge the potential of M 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 M but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.