12 Most Undervalued Retail Stocks To Buy According To Hedge Funds
In this article, we will take a look at the 12 most undervalued retail stocks to buy according to hedge funds. To see more such companies, go directly to 5 Most Undervalued Retail Stocks To Buy According To Hedge Funds.
The Retail Industry's Woes in 2022
The stock market turmoil of 2022 also affected retail stocks, as consumers cut back on spending and braced for recession. The worst hit in the sector were consumer discretionary stocks. According to a Bloomberg report published in November 2022, retail companies were bracing for a weak holiday season as they didn’t see any signs of consumers upping their discretionary spending in the period. The report said that Target Corporation (NYSE:TGT) shares fell after the company announced that sales trend would remain soft in October. The company specifically cited weakness in the sales of gift items. The National Retail Federation also forecast a slow holiday season when compared to 2021. Retail giant Amazon was also expecting the slowest holiday-quarter growth in its history.
Later, data from the Commerce Department confirmed the market’s worries. Retail sales in November fell 0.6%. Furniture and home furnishings stores posted a decline of 2.6%, while building materials and garden centers fell 2.5%. Data shows that motor vehicle and parts dealers dropped 2.3%.
The December retail sales report also showed the impact of inflation and interest rate hikes on the retail sector. Data shows that US retail sales fell 1.1% in December. A Bloomberg article quoted Bob Michele, chief investment officer at JPMorgan Asset Management, who said that the impact of Federal Reserve’s aggressive rate hikes has started to make itself visible. He said that the quantitative tightening is “starting to bite the economy.”
Goldman Sachs was also seeing an increasing volatility for retail companies heading into the holiday season of 2022. According to Bloomberg, Goldman was expecting this volatility due to “uncertain macro environment and reversals from the prior two years of pandemic-induced spending.”
The report also mentioned a Goldman survey in which the firm asked 1,000 US consumers about their holiday shopping plans. About 46% of the surveyed consumers said they plan on spending less during 2022 holiday season.
According to a Deloitte report, only one-third of retail executives have strong confidence that they would be able to maintain profit margins in 2023. The report said that all retail executives expect inflation to pressure their profit margins. The report said the retail industry is expecting “hard times” for consumers as well and expect the consumption to fall in 2023 amid inflation and financial concerns.
Our Methodology
For this article we first used stock screeners to identify retail stocks trading at a PE ratio of less than 20 as of February 2. From the resultant dataset we picked 12 stocks with the highest number of hedge fund investors. We used Insider Monkey’s database of 920 hedge funds’ holdings to gauge that metric. The list is ranked in ascending order of number of hedge fund investors.
Most Undervalued Retail Stocks To Buy According To Hedge Funds
12. Toyota Motor Corporation (NYSE:TM)
Number of Hedge Fund Holders: 12
Toyota Motor Corporation (NYSE:TM) is a notable name in the automotive retail segment. Toyota Motor Corporation (NYSE:TM) has a PE ratio of 10.44 as of February 2 and a dividend yield of 2.70%. As of the end of the third quarter of 2022, 12 hedge funds had stakes in Toyota Motor Corporation (NYSE:TM). The biggest stakeholder of Toyota Motor Corporation (NYSE:TM) was Ken Fisher’s Fisher Asset Management which owns a $711 million stake in the company. Toyota Motor Corporation (NYSE:TM) continues to hold the title of the best-selling automaker in the world. In 2022, Toyota Motor Corporation (NYSE:TM)’s group sales touched 10.5 million vehicles, which easily beat the 8.5 million units metric for the runner-up.
Toyota Motor Corporation (NYSE:TM) is in the news these days after the company recently announced a CEO transition which analysts believe points to the company’s upcoming focus on next-gen vehicles.
11. British American Tobacco p.l.c. (NYSE:BTI)
Number of Hedge Fund Holders: 14
As of the end of the third quarter of 2022, 14 hedge funds in Insider Monkey’s database of hedge funds had stakes in British American Tobacco p.l.c. (NYSE:BTI). The net worth of these stakes was about $1.8 billion. The biggest stakeholder of British American Tobacco p.l.c. (NYSE:BTI) during this period was Rajiv Jain’s GQG Partners which reported owning over 33 million shares of the firm at the end of the September quarter.
In December, British American Tobacco p.l.c. (NYSE:BTI) announced that it was expecting revenue growth of 2% to 4% in fiscal 2022 on a constant currency basis. British American Tobacco p.l.c. (NYSE:BTI) also said it expects mid-single digit adjusted diluted earnings per share growth on a constant currency.
In November 2022, investment firm UBS commented on British American Tobacco p.l.c. (NYSE:BTI) in its commentary on several stocks for 2023. The firm said that it believes British American Tobacco p.l.c. (NYSE:BTI) should continue to gain market share in the US, which is its largest market. The firm also said British American Tobacco p.l.c. (NYSE:BTI)’s vapor sales should benefit from recent price increase of its Vuse pods.
10. Crocs, Inc. (NASDAQ:CROX)
Number of Hedge Fund Holders: 31
Crocs, Inc. (NASDAQ:CROX) is a notable name in the footwear segment of the retail industry. Crocs, Inc. (NASDAQ:CROX) ranks 10th in our list of the most undervalued retail stocks to buy according to hedge funds. As of the end of the September quarter of last year, 31 hedge funds had stakes in Crocs, Inc. (NASDAQ:CROX). The net worth of these stakes was $611 million. At the end of the second quarter, 29 funds had stakes in Crocs, Inc. (NASDAQ:CROX). This showed that the hedge fund sentiment for Crocs, Inc. (NASDAQ:CROX) ticked up during the third quarter.
In January, Crocs, Inc. (NASDAQ:CROX) said it expects its 2022 revenue to total about $3.55 billion. This revenue would show a 53% growth on a YoY basis. For the fourth quarter, Crocs, Inc. (NASDAQ:CROX) said it expected its YoY revenue growth to come in at 60%.
9. Best Buy Co., Inc. (NYSE:BBY)
Number of Hedge Fund Holders: 31
Over the past six months Best Buy Co., Inc. (NYSE:BBY) shares have gained over 21%. Still, the stock’s PE ratio stands at 13.70 as of February 2. Hedge fund sentiment for Best Buy Co., Inc. (NYSE:BBY) is also positive. 31 out of the 920 hedge funds tracked by Insider Monkey entered the fourth quarter of 2022 with Best Buy Co., Inc. (NYSE:BBY) shares in their portfolios. This was up from 26 hedge funds that had reported owning Best Buy Co., Inc. (NYSE:BBY) stock at the end of the second quarter.
8. Tyson Foods, Inc. (NYSE:TSN)
Number of Hedge Fund Holders: 35
Tyson Foods, Inc. (NYSE:TSN) is one of the best retail stocks to buy according to hedge funds. Insider Monkey’s proprietary database of 920 hedge funds’ holdings shows that 35 hedge funds had stakes in Tyson Foods, Inc. (NYSE:TSN) at the end of the September quarter, compared to 37 funds in the previous quarter. The net worth of these stakes was $1.1 billion. The most notable stakeholder of Tyson Foods, Inc. (NYSE:TSN) in this period was AQR Cliff Asness’ Capital Management, with a $271 million stake.
In November, Tyson Foods, Inc. (NYSE:TSN) declared a quarterly dividend of $0.48 per share. Forward dividend yield at the time came in at over 2%. As of 2022, Tyson Foods, Inc. (NYSE:TSN) had an 11-year streak of consistent dividend increases.
7. DICK'S Sporting Goods, Inc. (NYSE:DKS)
Number of Hedge Fund Holders: 37
DICK'S Sporting Goods, Inc. (NYSE:DKS) ranks 7th in our list of the most undervalued retail stocks to buy according to hedge funds. DICK'S Sporting Goods, Inc. (NYSE:DKS) has a PE ratio of 12 as of February 2. Of the 920 hedge funds tracked by Insider Monkey, 37 hedge funds had stakes in DICK'S Sporting Goods, Inc. (NYSE:DKS), as of the end of the third quarter. This figure was 28 at the conclusion of the previous quarter. This shows that hedge funds have been piling into this retail stock. In December, investment firm Argus gave bullish comments on the stock after the company posted strong Q3 results. Argus’s analyst John Staszak increased his FY23 EPS estimate for DICK'S Sporting Goods, Inc. (NYSE:DKS) to $11.88 from $11.25.
For the third quarter, DICK'S Sporting Goods, Inc. (NYSE:DKS) said its consolidated same-store sales jumped 6.5%. Total sales in the period increased 7.6% to $2.96 billion and crushed analyst estimates of $2.70 billion.
6. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 42
eBay Inc. (NASDAQ:EBAY) ranks 6th in our list of the most undervalued retail stocks to buy according to hedge funds. As of the end of the third quarter, 42 hedge funds in Insider Monkey’s database of 920 funds reported owning stakes in eBay Inc. (NASDAQ:EBAY). The biggest hedge fund stakeholder of eBay Inc. (NASDAQ:EBAY) was D E Shaw, with a $218 million stake. According to Yahoo Finance, eBay Inc. (NASDAQ:EBAY) has a PE ratio (TTM) of 2.65 as of February 1.
In December, Wolfe Research analyst Deepak Mathivanan said in a note that eBay Inc. (NASDAQ:EBAY) looks undervalued. The analyst was issuing commentary on the e-commerce sector where he also downgraded Shopify and Chewy.
In November, eBay Inc. (NASDAQ:EBAY) priced $1.15 billion underwritten public offering of its senior unsecured notes, consisting of $425 million of 5.900% Notes due 2025, $300 million of 5.950% Notes due 2027 and $425.
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Disclosure: None. 12 Most Undervalued Retail Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
