Thursday, April 25, 2024
Stocks To Buy

7 Undervalued Retail Stocks to Buy Now

Finding the best undervalued retail stocks to buy now has been difficult as clarity around the retail sector is not forthcoming.

Consumer sentiment has moved higher, to 59.1 during the first weeks of December. Easing expectations regarding inflation are responsible for the improvement in sentiment which was anticipated to read 57. 

There are signs that overall retail strength remains difficult to gauge. It is clear that grocery sales remain particularly strong. Demand for higher cost, non-essential items looks less clear. That said, the undervalued retail stocks below will bolster portfolios. 

COST Costco  $468.83
KR Kroger  $44.02
MELI MercadoLibre  $831.95
DKS Dick’s Sporting Goods  $112.17
BBY Best Buy  $79.97
BKE Buckle  $43.61
WOOF Petco Health & Wellness  $10.14

Costco (COST)

Costco (NASDAQ:COST) stock is getting slammed for some issues. However, those issues are arguably minor, making it one of the undervalued retail stocks to buy now.

The issue is that same-store sales fell short of expectations. Given how well Costco has performed in 2022, some investors view it as a concerning signal. 

Yet, Costco continues to do well overall. Sales grew 8.1% during the quarter, rising from $49.42 billion to $53.44 billion on a year-over-year basis. Costco has had to deal with increasing cost structures leading to decreasing profitability.

That said, net income figures increased slightly from $1.324 billion to $1.364 billion this quarter. That suggests that although Costco continues to deal with higher costs it is managing well. 

Costco continues to benefit from strong spending on food. Consumers are pulling back on non-essential spending for items including electronics and jewelry. The company’s continued robust top-line growth should be more than enough to entice investors into COST stock at reduced prices. 

Kroger (KR)

Kroger (NYSE:KR) stock continues to offer value to investors at lower prices while sales and overall performance remain very strong.

Despite very strong Q3 performance leading to increased full-year guidance, KR stock still has upside baked into its target price, making this one of the best undervalued retail stocks to buy for big gains.

Investors should consider that upside along with various other forms of upside inherent in the shares. 

Kroger continues to do well because consumer spending on food remains strong. Sales increased 6.9% to $34.2 billion during the quarter on a YoY basis. Kroger’s generic Our Brands sales increased 10.4% on an identical-store basis. The strong performance prompted management to increase its full-year guidance from a range of $3.95 to $4.05 to a range between $4.05 to $4.15. 

Kroger also has upside potential in the form of its planned merger which is still expected to occur in early 2024. Add to that, a dividend yielding 2.2% and Kroger stock looks like a great investment. 

MercadoLibre (MELI)

MercadoLibre (NASDAQ:MELI) is the largest eCommerce platform and payment system in Latin America.

The company’s strong presence across 18 countries from Mexico to Argentina makes it the best online retail choice for investors seeking to take advantage of rapid internet commerce growth across the region’s 650 inhabitants.  

Investors are becoming increasingly aware of the value of MELI stock. However, significant upside remains with target prices above $1,263 and a current price just above $900.

More technical assessments, such as its median price-to-sales valuation, suggest MELI shares should trade above $2,100. In either case, the upside is clear in a company that continues to draw comparisons as the Amazon of Latin America, making it one of the best undervalued retail stocks in the ecommerce sector.

Investors don’t need to overthink the minutia surrounding MercadoLibre. Instead, simply consider that sales increased 60.6% in the most recent quarter year over year. Meanwhile, gross profit and operating income grew by 87.5% and 115.6% during the same period, respectively. 

Dick’s Sporting Goods (DKS)

Now is a good time to buy Dick’s Sporting Goods (NYSE:DKS) stock as the sports equipment retailer moves strongly into the Christmas season. As a short-term investment, DKS is one of the best undervalued retail stocks to buy for quick gains.

Dick’s Sporting Goods is coming off strong Q3 earnings released just prior to Black Friday which should set it up to move higher in the coming months.

On Nov. 22, the company announced that it was increasing full-year guidance following positive news. Dick’s strong performance was a positive sign for a retail sector that has seen non-essential discretionary spending slow. The fact that a retailer outside of the grocer segment is thriving is a strong sign to other retail segments. 

Overall sales increased 7.7% with comparable store sales increasing 6.5% during the period on a YoY basis. 

Those results didn’t include Black Friday sales. Dick’s should see strong Christmas sales considering Q3’s strength and that makes it one to consider as it could shoot up in price when Q4 earnings are announced next year. 

Best Buy (BBY)

Best Buy (NYSE:BBY) stock is a great example of how perception is sometimes everything.

It’s not often that a company sees prospects rise while quarterly sales decrease 10.4% and EPS drops from $2 to $1.22, but that’s precisely what happened when Best Buy released earnings Nov. 22. 

The results were better than expected and that is giving Best Buy confidence that is also rippling through the greater retail sector. 

Best Buy is also getting leaner. The company incurred $26 million in restructuring costs in Q3. In other words, it laid off a bunch of employees in order to increase overall efficiency. That should result in improved operational metrics moving forward which benefits the stock overall. 

Investors should also consider that Best Buy rewards its investors through an attractive dividend. That dividend yields 4.27% currently and hasn’t been reduced since 2014. Year-to-date, Best Buy has returned $1.06 billion to shareholders making it attractive to income investors who believe discretionary spending could surprise this holiday season. 

Buckle (BKE)

Buckle (NYSE:BKE), the casual clothing retailer, has shown strong top-line growth, which, when combined with a dividend and other favorable metrics, makes it a buy. 

Over the last quarter and year-to-date, Buckle’s sales have increased by 4.1% and 3.3%, respectively. Meanwhile, operating expenses have increased during both periods. That has led to net income numbers that have fallen slightly. 

That said, there are multiple reasons to believe in BKE stock. It has a roughly 33% upside based on its consensus target price for one. But it’s really the profitability metrics that ought to interest investors. Specifically, its incredible ability to create value as measured by a 47% return on invested capital far outpaces a 7.3% average cost of capital

BKE stock also includes a 3.12% dividend and a P/E ratio better than three-quarters of its retail-cyclical competitors. 

Petco Health & Wellness (WOOF)

Petco Health & Wellness (NASDAQ:WOOF) offers a 40% upside over the coming 12 to 18 months which makes it a buy despite broader concerns. Those concerns revolve around decreasing supplies and pet sales earlier in the year. 

Things haven’t improved significantly even though Petco continues to see sales growth. That growth amounted to a 4% increase in the most recent quarter on reported sales of $1.5 billion. 

To be clear, investing in Petco now is for those who intend to hold. It’s really a play on market cyclicality. Petco’s comparable store sales increased by 4.1% in the most recent quarter. However, they grew by 19.6% on a two-year basis. 

So, while consumers may be spending less on their pets these days, they will increase spending in time. Petco boasts a 3-year revenue growth rate of 13.7%. That too, suggests that pet spending is only down temporarily due to broader economic concerns.

That means patient investors have a chance for quick gains in a well-known name in a pet industry that will continue to grow overall. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks.Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.

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