We recently published a list of the 10 Best Department Store Stocks to Invest in. In this article, we are going to take a look at where Albertsons Companies, Inc. (NYSE:ACI) stands against the other best department store stocks to invest in.

Is the American Consumer Cracking?

Consumer sentiment is taking a hit in the US, with threats of a potential recession looming across the market. Company leaders, ranging from affordable grocery stores to luxury goods sellers, are noticing cracks in demand, which reflects a notable trend shift from the resilient consumers who supported the US economy for years, even during elongated periods of inflation. On March 14, CNBC reported that while headwinds like persistent inflation and high interest rates were already affecting companies, they now have to deal with additional obstacles such as worsening consumer sentiment, tariffs that go on and off, and mass government layoffs.

Over the last weeks, investor presentations and earnings calls have shown a distinct trend: consumer-facing businesses and retailers are warning that fiscal Q1 2025 sales are coming in softer than expected. 2025 may prove to be a year tougher than what analysts initially estimated.

CNBC reported that several executives opined that a “dynamic” macroenvironment and unseasonably cool weather were the culprits behind this trend. However, with President Trump’s second term continuing to unfold, new challenges are beginning to emerge. Trade policies reflect inherent uncertainty, as they seem to shift by the hour. Experts and economists anticipate that the effects of new tariffs on Chinese, Canadian, and Mexican goods will be felt across the economy, elevating prices for consumers and hampering spending in an environment where inflation is already higher than the Fed’s target.

Consumer confidence reports, which show how much money shoppers are spending to gauge their patterns, corroborate these claims. According to CNBC, consumer confidence in February showed its biggest drop since 2021. Another consumer sentiment measure for March showed even worse results. The University of Michigan Survey of Consumers for March posted a 57.9 reading, down 10.5% from February levels and standing below the Dow Jones consensus estimate of 63.2. In addition, the one-year inflation outlook rose to 4.9%, the highest reading since November 2022. The outlook at the five-year horizon also bubbled to 3.9%, the highest since February 1993.

READ ALSO: 12 Best Household Stocks to Buy According to Hedge Funds and 12 Best Diagnostics Stocks to Invest In Right Now. 

Could the US be on the Path to Recession?

Similarly, the strong US job market is also showing early signs of stress, with unemployment rising and job growth slowing. These trends have greatly affected the previously red-hot stock market, with fears surrounding a potential recession emerging. CNBC reported that executives and investors are concerned about the impact of Trump’s tariffs on consumer spending, leading to additional worries about an administration from which they previously had optimistic hopes. While the weak companies are already taking on a cautious approach, even the strong ones are jumping on the bandwagon and preparing for an uncertain future.

Ed Stack, chairman of Dick’s Sporting Goods, expressed similar sentiments in a CNBC interview, saying:

“I do think it’s just a bit of an uncertain world out there right now. What’s going to happen from a tariff standpoint? You know, if tariffs are put in place and prices rise the way that they might, what’s going to happen with the consumer?”

Several companies in the sector managed to surpass S&P 500 performance in the past year, even during a decrease in discretionary spending. Therefore, the current shift presents a notable industry point and might be a warning sign that consumers are beginning to crack. Even excellent execution may not be able to shield companies from tariff-induced price rises after four years of historic inflation. On the other hand, companies who already spent last year dealing with uncertain consumer trends and dynamics are sounding even more skeptical.

Dollar General CEO Todd Vasos discussed the ongoing situation in the company’s fiscal Q4 2024 earnings call, adding that customers are expecting value and convenience “more than ever.”

“Our customers continue to report that their financial situation has worsened over the last year, as they have been negatively impacted by ongoing inflation,” he said. “Many of our customers report they only have enough money for basic essentials, with some noting that they have had to sacrifice even on the necessities. As we enter 2025, we are not anticipating an improvement in the macro environment, particularly for our core customer.”

American Eagle CEO Jay Schottenstein also shed light on the situation in the following words:

″[Consumers] have the fear of the unknown. Not just tariffs, not just inflation, we see the government cutting people off. They don’t know how that’s going to affect them. They see programs being cut, they don’t know how that’s going to affect them. And when people don’t know what they don’t know – they get very conservative … it makes everyone a little nervous.”

Our Methodology

We sifted through stock screeners, financial media reports, and ETFs to compile a list of 20 department store stocks. We then selected the top 10 stocks that were the most popular among hedge funds, as of Q4 2024, and ranked them in ascending order. We sourced the hedge fund sentiment data from Insider Monkey’s database.

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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Albertsons Companies, Inc. (NYSE:ACI)

Number of Hedge Fund Holders: 70

Albertsons Companies, Inc. (NYSE:ACI) is a US-based food and drug retailer. It has over 2,269 stores across 34 states and the District of Columbia under 20 banners, including Star Market, Shaw’s, Albertsons, Kings Food Markets, United Supermarkets, Haggen, Kings Food Markets,  Acme, Carrs, and more.

On March 13, RBC Capital analyst Steven Shemesh raised the firm’s price target on Albertsons Companies, Inc. (NYSE:ACI) to $23 from $22, keeping an Outperform rating on the shares. The analyst told investors in a research note that the firm continues to believe in the margin opportunity.

Albertsons Companies, Inc. (NYSE:ACI) reported strong performance across all metrics, with 2024 results ahead of its expectations and guidance. Total revenue grew by 10% over 2023, above the company’s upper single-digit longer-term forecast. Its adjusted EBITDA grew 18% in 2024, while its adjusted net EBITDA margin of 41% expanded more than 300 basis points. These trends reflect the inherent leverage in Albertsons Companies, Inc.’s (NYSE:ACI) software model. Cash flow generation also remains strong for the company, with cash flow from operating activities reaching $359 million in 2024, more than double the previous year.

Overall, ACI ranks 4th on our list of the best department store stocks to invest in. While we acknowledge the potential of ACI 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 time frame. If you are looking for an AI stock that is more promising than ACI 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.