In this article, we will be taking a look at the 10 Best Retail Stocks to Buy Now.
Tech is Disrupting Retail
The rise of tech and artificial intelligence (AI) in the past few years has had an impact not only on the tech sector but on the entire market. The retail sector is no stranger to this impact, with analysts now considering tech-enabled innovation as one of the core drivers in the growth of the retail sector. As a result, those retailers that are taking the tech expansion seriously and are making investments to incorporate new technology in their operations are finally beginning to catch the market’s attention.
On June 24, Simeon Gutman, analyst at Morgan Stanley, joined CNBC’s “The Exchange” to discuss the impact of tech and AI on retailers and how these companies are making use of tech to drive up profit margins. Here are some of his comments on the retail companies to keep an eye on in this respect:
“Walmart’s the one that comes to mind the first… with Walmart, you’re hitting the nail on the head with several of these aspects of tech diffusion, and on top of it, they’re gaining market share in terms of tech diffusion. AI is easily one of them, big scale, lot of data, lot of opportunity to go through their data and enhance both the frontend of their business, drive more sales to customers, make things easier, and improve the backend.”
According to Gutman, big-box retailers are the sector’s winners when it comes to incorporating innovative tech in their internal operations. Because of such innovation in retail, and its consequent impact resulting in increased profit margins for retailers, there may be room to argue that retail is fast making a comeback in the market.
Retail Sector Outlook 2024
According to the WTW Global Retail Survey for 2024, 52% of retailers this year generally expect higher profitability within two years. Additionally, more retailers today (48%) are looking to incorporate artificial intelligence in their operations to offer personalized shopping experiences to their customers. However, the rise of tech and AI in the sector has also resulted in some retailers (43%) voicing concerns about higher cybersecurity risks arising through a greater reliance on new technologies.
Despite the risks involved, most retailers today are heading towards AI incorporation to meet customers’ demands. According to the survey, AI is primarily favored by online-only and electronic retailers because of its potential for catalyzing growth. By helping retailers automate their processes and supply chain operations, AI and new technologies can enable retailers to deliver personalized experiences and recommendations to their customers. This is an exceptionally important feature in today’s market, with consumers becoming more reliant on new technologies and their benefits in everyday life.
A woman in a retail store trying out a product, showcasing the retail colocation of the company.
Our Methodology
We sifted through ETFs and online rankings to compile a list of 25 retail stocks. We also used the Finviz stock screener to double check we didn’t miss any popular stocks. For this list, we have considered apparel retailers, discount stores, department stores, and home improvement retailers. We selected and ranked 10 stocks, from our initial pool of 25, that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds holding 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)
10 Best Retail Stocks To Buy Now
10. Burlington Stores, Inc. (NYSE:BURL)
Number of Hedge Fund Holders: 40
Burlington Stores, Inc. (NYSE:BURL) is an apparel retail company based in Burlington, New Jersey. The company offers fashion-focused merchandise, such as ready-to-wear apparel, footwear, accessories, toys, gifts, and coats. It operates stores in Washington DC and Puerto Rico.
In the first quarter, Burlington Stores, Inc. (NYSE:BURL) reported revenue growth of 10.5% and its comparable-store sales rose by 2% from the year-ago quarter. The company has been benefiting from Bed Bath & Beyond’s bankruptcy, which has resulted in an increased demand for off-price retail products that it is able to provide. Burlington Stores, Inc. (NYSE:BURL) is also further expanding its operations with its new store in West El Paso, Texas.
As of May 31, Citigroup analysts hold a Buy rating on Burlington Stores, Inc. (NYSE:BURL). The consensus average price target on the stock is $265.5, with a high forecast of $284 as of June 28.
There were 40 hedge funds long Burlington Stores, Inc. (NYSE:BURL) in the first quarter, with a total stake value of $2 billion. At the end of the first quarter, Citadel Investment Group was the largest shareholder in Burlington Stores, Inc. (NYSE:BURL), holding 1.2 million shares in the company.
ClearBridge Investments mentioned Burlington Stores, Inc. (NYSE:BURL) in its fourth-quarter 2023 investor letter:
“Interest rate relief also had a strong impact on more cyclical companies and those with ties to general consumer spending. For example, consumer discretionary holdings and discount retailers Burlington Stores, Inc. (NYSE:BURL) and Five Below both rose during the quarter thanks to improving outlooks. Five Below, a specialty value retailer for products including apparel, accessories, novelty items, décor, cosmetics and accent furniture, rebounded from being one of the third quarter’s worst-performing stocks. We believe both Five Below and Burlington are particularly well-positioned for an economic environment where consumer budgets are being tightened but demand for discretionary goods remains stable.”
9. Abercrombie & Fitch Co. (NYSE:ANF)
Number of Hedge Fund Holders: 46
Abercrombie & Fitch Co. (NYSE:ANF) is a consumer discretionary apparel retailer based in New Albany, Ohio. The company operates as an omnichannel retailer. Its main markets are in the US, Europe, the Middle East, Asia, the Asia-Pacific, and Canada. We saw 46 hedge funds long Abercrombie & Fitch Co. (NYSE:ANF) at the end of the first quarter, with a total stake value of $786.7 million.
Abercrombie & Fitch Co. (NYSE:ANF) has been enjoying immense sales growth this year, with the company expecting sales in 2024 to rise by 10% compared to 2023. The company owns the reputed brand Hollister, and has been making a comeback in the past couple of years with demand for its products rising. For instance, in the first quarter, Abercrombie & Fitch Co. (NYSE:ANF) saw sales growth of 22% year-over-year, with Hollister brand sales growing by 12% as well.
The average analyst price target on Abercrombie & Fitch Co. (NYSE:ANF) is $166, with a high forecast of $215 as of June 28. As of May 30, Citigroup analysts maintain a Neutral rating on the stock.
Here’s what Chartwell Investment Partners, LLC said about Abercrombie & Fitch Co. (NYSE:ANF) in its third-quarter 2023 investor letter:
“Within the Carillon Chartwell Small Cap Growth Fund, information technology and industrials were the strongest-performing sectors, with strong stock selection leading to alpha generation. Abercrombie & Fitch Co. (NYSE:ANF) reported very strong earnings driven by significant margin improvement that resulted from much lower shipping and freight costs compared to last year.”
8. Macy’s, Inc. (NYSE:M)
Number of Hedge Fund Holders: 47
Macy’s, Inc. (NYSE:M) is another omni-channel retail organization on our list of the best retail stocks to buy. It operates stores, websites, and mobile applications in the US to sell merchandise such as apparel and accessories for adults and children. The company’s markets include the US, United Arab Emirates, and Kuwait, among others.
The consensus average price target on Macy’s, Inc. (NYSE:M) is $19.50, with a high forecast of $27, as of June 28. JP Morgan analysts maintain an Overweight rating on the stock as of May 22.
Macy’s, Inc. (NYSE:M) operates several retail brands such as Bloomingdale’s and Bluemercury, which have been propelling the company’s growth. Revenue for the company in the first quarter came in at $4.85 billion, topping analyst expectations of $4.82 billion. The company is working diligently to maximize profitability, which is why it is closing stores where sales are lagging while focusing on opening up small-format stores throughout the US. Through 2025, Macy’s, Inc. (NYSE:M) is aiming to open 30 new small-format stores.
In the first quarter, 47 hedge funds were long Macy’s, Inc. (NYSE:M). Their total stake value in the company was $493.1 million.
Holding 2.8 million shares in the company, Citadel Investment Group was the most prominent shareholder in Macy’s, Inc. (NYSE:M) at the end of the first quarter.
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