In this article, we will look at the 7 Cheap Reliable Stocks to Invest in. Let’s look at where Macy’s, Inc. (M) stands against other cheap reliable stocks.
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.
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
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.
Overall, M ranks 4th among the cheap reliable stocks to invest in. 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.
