In this article, we will look at the 10 Cheap Retail Stocks to Buy According to Analysts. Let’s look at where Bath & Body Works (BBWI) stands against other cheap retail stocks to buy according to analysts.
Overview of Recent Consumer Buyer Trends and the Retail Sector
On September 18, the Fed cut interest rates for the first time since the Covid-19 pandemic, slashing the benchmark rate by half a percentage point. This brought to a range between 4.75% and 5%. The adjustment aims to relieve consumers and businesses suffering from high borrowing costs and protect the labor market, which was showing signs of slowing. This strategic move by the Fed is interpreted as a sign of relaxation against inflation and a welcome change for businesses and consumers.
Although the impact of the lower interest rates is expected to be substantial, it will likely take time to make its way through the economy. The prospect has, however, strengthened confidence in Americans that inflation will continue to cool, paving the way for good days ahead. According to research by BCG, consumer confidence is already recovering, albeit slowly, across the world and in the US. With people increasingly believing that their personal finances are improving, the sentiment is likely to continue on an upward trajectory if circumstances do not change.
A recent survey by the Center for Customer Insight (CCI) suggests that the extent to which increasing consumer confidence will translate into increasing consumer spending is likely to vary across markets and product categories. The survey reported that the percentage of respondents with personal finance concerns dwindled from 39% in 2023 to 26% in 2024. These trends are significant for retailers, as the financial health of consumers in the country affects the categories and services they prioritize when spending money.
The Future of the Retail Sector
According to the WTW Global Retail Survey for 2024, around 52% of retailers this year expect increased profitability in the coming two years. In addition, approximately 48% of retailers are looking to leverage artificial intelligence in their operations to offer their customers a personalized and efficient shopping experience. However, with more and more businesses turning towards AI, around 43% of the respondents voiced concerns about high cybersecurity risks likely to arise with increasing reliance on new technologies. Despite the risks, a majority of retailers are incorporating AI into their operations, streamlining and expediting their functioning.
On June 24, Simeon Gutman, an analyst at Morgan Stanley, joined CNBC’s “The Exchange” to discuss the impact of tech and AI on retailers and how these companies are leveraging technology to boost profit margins. Here is what to say about retail companies in this respect:
“Walmart’s the one that comes to mind the first…, 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, lots of data, a 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 taking the lead in infusing tech and AI into their internal operations, increasing profit margins and streamlining operations. Such innovative trends may allow the retail industry to bounce back in the market, taking the lead and leading the change.
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 10 stocks with the highest analyst upside potential as of September 23, 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).
10 Cheap Retail Stocks to Buy According to Analysts
Bath & Body Works (NYSE:BBWI)
Forward P/E: 9.4
Analyst Upside Potential as of September 23, 2024: 41.50%
Number of Hedge Fund Holders as of Q2 2024: 55
Bath & Body Works (NYSE:BBWI) is an omnichannel retailer specializing in personal care and home fragrance. It sells merchandise through its retail stores in the US and Canada, its websites, and other channels under a portfolio of brand names, including Bath & Body Works, White Barn, and others. It also operates an international business network managed through its license, franchise, and wholesale partners.
Bath & Body Works (NYSE:BBWI) specializes in various home fragrances and care, including body lotion and body cream, fine fragrance mist, home fragrance diffusers, 3-wick candles, and liquid hand soap. It holds a competitive market advantage due to its accessible prices, unique combination of fragrances, and packaging. The company operates in a network of around 1,850 company-operated stores and e-commerce sites in Canada and the US. In addition, it also manages more than 500 stores and 28 e-commerce sites in more than 40 countries operating under license, wholesale, and franchise arrangements.
Although Bath & Body Works (NYSE:BBWI) functions amid a challenging landscape of value-driven consumers and economic uncertainty, it is undertaking actions to drive growth in its core portfolio. It is also expanding into new adjacency end markets, using its agile model to adapt to a dynamic environment, expanding margins, and cutting costs to optimize business.
In Q2 2024, it continued its investments to strengthen its operating foundation and built a platform with an emphasis on five key growth strategies: engaging with customers, expanding its reach, improving operational efficiency and excellence, elevating the Bath & Body Works (NYSE:BBWI) products and brand, and enabling a seamless omnichannel experience.
It is making solid progress across these elements, innovating its portfolio and leveraging speed to continuously improve its products’ ingredients, quality, efficacy, packaging, and fragrances.
The company is also making significant investments in its product and marketing category in an attempt to strengthen brand loyalty and category leadership. Its wide array of price points gives it a market advantage, selling items ranging from $2 PocketBac to $60 Eau de Parfum. It also offers a breadth of product points within categories, extending its reach.
Overall, BBWI ranks first among the 10 cheap retail stocks to buy according to analysts. While we acknowledge the potential of BBWI 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 BBWI 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.