We recently published a list of 10 Best Retail Stocks To Invest In. In this article, we are going to take a look at where Ross Stores (NASDAQ:ROST) stands against the other best retail stocks to invest in.
What Does the Holiday Shopping Season Look Like?
On December 2, Lindsey Bell, Chief Strategist at 248 Ventures, appeared on CNBC to discuss the consumer and economy in the holiday shopping season and the impact of proposed tariffs and the strong dollar on earnings. She said that the economy will see a resilient consumer, economy, and marketplace this week and at the end of the year. Bell expressed optimism going into the end of the year and was of the view that there is opportunity in retail at the present after staying in the shadows as a forgotten area.
As consumers have shifted in how they spend money and what they spend it on over the last several years, the retail sector is starting to see a comeback to discretionary items. Although an opportunity exists, retailers can only avail of it if they have the right merchandise at the right price or offer the right experience for the consumer. This is because the consumer is still value-oriented and price-sensitive simultaneously.
Tariff Threats: Are They Real for Investors and Consumers?
Concerns are circulating in the retail industry about the potential effects of “tariff threats” on the economy. Bell was of the view that it is undoubtedly necessary to stay on top of the potential threats that the president-elect’s proposed tariffs might cause to the markets.
However, she took us back to Trump’s first term as a president and the tariff increases he made, that Joe Biden continued in his term, highlighting that there wasn’t a significant lasting inflationary impact to them. She explained how tariffs work, saying that they go up when put on and have an impact in the near term, but eventually subside over time. The markets saw that in 2018 and 2019, while real inflation came in 2021 and 2022 with the pandemic. She reiterated that although the tariffs are something we need to keep an eye on, the scenario is not something we need to worry about from a consumer perspective this holiday shopping season.
Although the tariffs may not pose threats to consumers, what do they mean for investors? With the dollar up by half a percent at the time of the interview, concerns are rising about the dollar’s possible strength going into the next earnings season and the possible impact on rates that these “tariff threats” might bring about.
Bell agreed that the dollar’s strength impacts the earnings season, as about 50% of the S&P 500 gets its revenues from overseas multinational companies. She said that the dollar’s strength can continue into the year ahead, but this is a relative game. It is important to consider the currency and the strength of the economy around the world, as a strong dollar does depict a strong economy here in the US.
A close-up of a mannequin outfitted with the company’s latest collection of apparel.
Our Methodology
For this article, we used the Finviz stock screener to identify around 40 retail stocks and narrowed our list to 10 stocks with the highest number of hedge fund holders, as of fiscal Q3 2024. We sourced the hedge fund data from Insider Monkey’s database. The stocks are arranged in ascending order of the number of hedge funds that have stakes in them.
At Insider Monkey, we are obsessed with 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).
Ross Stores, Inc. (NASDAQ:ROST)
Number of Hedge Fund Holders: 55
Ross Stores (NASDAQ:ROST) is an off-price apparel retailer that operates home fashion stores under two brands: Ross Dress for Less (Ross) and DD’s Discount. It operates over 1,764 Ross store locations in 43 US states, the District of Columbia, and Guam. It also has over 345 DD’s Discounts stores across 22 US states. Customers can find discounted in-season designer and name-brand apparel at the company’s stores, along with footwear, accessories, and home fashion. The company’s discounts typically vary from 20% to 60% compared to regular department and specialty store prices.
Ross Stores Inc. (NASDAQ:ROST) completed its expansion program for 2024 in fiscal Q3 2024, adding 43 new Ross and four DD’s Discount stores. It added a total of 89 locations for the year, comprising 75 Ross and 14 DD’s Discount stores. The company plans to relocate or close seven locations in fiscal Q4 2024 and expects to end 2024 with 1,831 Ross stores and 354 DD’s Discount stores.
Ross Stores Inc.’s (NASDAQ:ROST) total sales for fiscal Q3 2024 grew to $5.1 billion, up from $4.9 billion in the prior year. However, several factors slowed its fiscal Q3 2024 sales, including severe weather from Hurricane Hilton and Lane and unseasonably warm temperatures late in the quarter. However, investors are bullish on the stock and expect these headwinds to be temporary. The fact that customers are leaning towards discounts and deals, especially in the discretionary items category, also falls in the company’s favor.
In its fourth-quarter 2023 investor letter, TimesSquare Capital Management mentioned Ross Stores, Inc. (NASDAQ:ROST):
“In Consumer-oriented sectors, we lean towards value-oriented or specialty retailers, franchise models, as well as premium brands. Also gaining 23% over the quarter was Ross Stores, Inc. (NASDAQ:ROST), an off-price retailer featuring apparel and home fashions. Third-quarter results were solid as sales comparisons accelerated with higher levels of customer traffic across geographies. Management raised full-year guidance. We added to the position given our increased conviction at the start of the quarter.”
Overall, ROST ranks 5th on our list of best retail stocks to invest in. While we acknowledge the potential of retail stocks, 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 ROST 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.