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 Walmart, Inc. (NYSE:WMT) 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 manager standing in a hypermarket, pointing out items available for wholesale.
Walmart, Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 95
Walmart (NYSE:WMT) is the largest brick-and-mortar retailer across the globe, operating a chain of discount department stores, grocery stores, and hypermarkets. To put its size into perspective, Walmart (NYSE:WMT) operates around 10,600 stores around the world, with more than 50% of them located outside the United States in 23 other countries. Target (NYSE:TGT), in contrast, has around 2,000 stores, while Kroger has 2,750.
While Walmart’s (NYSE:WMT) sheer size offers it a distinct competitive advantage, there are several other positive reasons behind the stock ranking first on our list of the 7 best department store and discount retailer stocks to buy. It has created a vast retail “omnichannel” with its subscription-based Walmart+ program, which reported a 14.4% year-over-year growth in its membership income. This omnichannel alone was the cause behind a 22% year-over-year growth in Walmart’s (NYSE:WMT) e-commerce revenue in the last quarter.
Walmart (NYSE:WMT) also started appealing to high-income households when inflation started soaring in 2021. Although inflation has started to fall, the company is likely to retain its new customers since it has started adding higher-end brands to its portfolio. For instance, Chaps and Reebok are recent premium additions to the company’s apparel lines, and so are premium wines. Walmart (NYSE:WMT) stores previously looked like warehouses, but the company has now changed this by offering theme-based and seasonal visual presentations.
In addition, the company is expected to remain resilient despite potential economic turbulences, primarily because more than half of its revenue is related to grocery. Regardless of the economic environment, people must eat, after all. It is also poised to withstand challenges, since 25% of its sales come from general merchandise, including office supplies, light bulbs, kids clothing, towels, socks, and the likes.
95 hedge funds hold stakes worth 9.19 billion as of Q2 2024. It sports a consensus Buy rating from analysts, with its median price target presenting an upside of 4.88% from current levels.
Overall WMT ranks 1st on our list of the best department store and discount retailer stocks to buy. While we acknowledge the potential of WMT 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 WMT 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.