Jerome Powell, Chair of the US Federal Reserve, said that the Fed is in no rush to make further rate cuts given the current state of the US economy. The October retail sales numbers indicate that American consumers are still spending, with retail sales growing 0.4% in October. On November 15, Skyler Weinand, chief investment officer of Regan Capital, appeared on Bloomberg to discuss the retail sales numbers.
He said that the Fed will likely cut rates in the current economy in December, with January bringing a 50/50 scenario. The next 13-14 months might bring two or three Fed cuts, bringing the Fed fund rate down to 4%. In the meantime, Weinand says that the backend of the curve might be selling off, and we might see 5% again on the long end of the curve. He says that this is actually welcoming news, as a steep rate curve is wanted.
With the steepening yield curve also being a forecast of the bond market that inflation will be higher in the future, Weinand says that the US consumer and corporations are extremely strong, with corporate balance sheets seeing the least amount of leverage since 1950. Debt to equity in the United States is standing at 19%, and consumer balance sheets are extremely strong as well. Consumer debt, including mortgage debt, has been around the same for the last five years, yet US net wealth has grown to around $165 trillion.
All of this shows that the consumer is strong and that there is a considerable runway for consumers to potentially spend and re-lever. In addition, the government is going to spend $2 trillion next year in a fiscal deficit. Weinand thus believes that there are so many wheels behind inflation that could potentially trigger a rise of 2.5% to 3% above current levels. For him, the fear of inflation is real.
CNBC’s NRF Retail Monitor also showed a solid bounce back in consumer spending after a disappointing September, with declining gas prices bringing a little extra money into the pockets of Americans for discretionary spending. On November 12, CNBC’s Steve Liesman joined ‘Squawk Box’ to talk about the Retail Monitor, saying that retail sales grew by 0.7% month over month after a 0.3% decline in September. In addition, core retail grew by 0.8% month over month and 4.6% year over year in October.
A further sector-wise breakdown of retail sales in October shows a 2.7% month-over-month growth in sporting goods and hobbies, a 1.8% month-over-month increase in nonstore retailers, and a 1.7% month-over-month growth in building and garden supplies. Health and personal care grew by 1.4% month-over-month. However, clothes and accessories underwent a 0.6% month-over-month decline, and so did electronics and appliances, falling by 0.8% month-over-month.
On November 16, Rick Caruso, founder and executive chairman of Caruso, joined CNBC’s ‘Power Lunch’ to discuss his take on holiday retail. He said consumers are in “great shape” going into the holiday season. They might start to shop early, with retailers offering earlier sales. Retail sales suggest that the economy has plenty of momentum going into the holiday season, but the 2024 holiday season is likely to have five fewer days of shopping than the holiday season of 2023.
An interesting brand loyalty crisis is also emerging this holiday season. Consumers are looking for better prices and deals instead of going back to the brands they always shop at. They are looking for the best value and are generally inching away from brand loyalty, prioritizing quality and price over brand names and tags. According to McCarthy, consumers seek quality, value, and variety when they go holiday shopping. He says that:
Our Methodology
To compile a list of the 12 most undervalued retail stocks to buy according to analysts, we used the Finviz stock screener and online sources to compile a list of the top 15 undervalued retail stocks with forward P/E ratios less than 15 as of November 18, 2024. We then checked their upside potential, according to analysts, and chose the top 12 stocks with the highest potential. The stocks are arranged in ascending order of analysts’ upside potential as of November 18, 2024.
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).
A delivery truck filled with grocery items heading to a local school.
Forward P/E: 12.59
Analyst Upside: 60.45%
Sendas Distribuidora SA (NYSE:ASAI), more commonly known as Assai Atacadista, is a retailer based in Brazil that operates in the foot distribution sector. Its operations are divided into two operational segments: Retail and Cash & Carry. The retail segment operates a network of supermarkets, hypermarkets, and convenience shops under various brands in South American countries. Its Cash & Carry segment offers food, bazaar items, and various other products to wholesale customers in Brazil.
Due to its efficient business model, the company has significant capacity for stability in expenses, cash generation, and margin maintenance. Analysts are bullish on the stock because of its strong market presence, as it continues to be assertive and accepted in the markets it is present in.
Sendas Distribuidora SA (NYSE:ASAI) is focusing on store growth, reaching 21 openings in the last 12 months, as per its fiscal Q3 2024 earnings report. This translates to a net addition of 8% in the company’s total sales area, along with four new stores that it delivered in fiscal Q3 2024. Since the company is undertaking actual modifications in its business model instead of simply expanding its operations, it boasts an innovative performance model that allows increased penetration in all different social levels. This also makes it one of the unique business models in Brazil, as it serves consumers from all social levels in the country.
The company holds a history of supporting its growth by its own cash generation ever since its inception in 2011. It has managed to sustain growth in investments and projects without receiving investments, which highlights its solid operational model.
Overall ASAI ranks 1st on our list of the most undervalued retail stocks to buy according to analysts. While we acknowledge the potential of ASAI 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 ASAI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
