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2 Cheap Retail Stocks to Buy Before the Holiday Shopping Season


Trades from $3

Yesterday, the National Retail Federation said that it expects holiday sales to grow by 3.6% to $655.8 billion in 2016.  It’s worth noting that this is a faster rate than the 3.4% average  annual growth since 2009.  Lower inflation and higher wages have boosted consumer purchasing power, so the US could be in for a very busy shopping season.    

There’s reason to be bullish on the coming holiday season, so you may want to add these three retail stocks to your portfolio.  They are all buy-ranked, and they also look like attractive bargains across fundamental valuation metrics.

Macy’s Inc-(M - Analyst Report)

Macy’s is a premier retailer that operates about 880 stores in 45 states, Guam, and Puerto Rico.  Its brands include Macy’s, Macy’s Backstage, Bloomingdale’s, Bloomingdale’s Outlet, and Bluemercury.  The company sells merchandise from brands that consumers love, such as Calvin Klein, Estée Lauder, Michael Kors, and Tommy Hilfiger.  Macy’s is a Zacks Rank #2 (Buy) and it gets an “A” for Value in our Style Scores.

The stock is close to 50% lower than its highs from 2015.  The apparel retailer stands to benefit from the coming holiday season, and at current valuation levels, Macy’s stock looks very attractive.  Shares of M trade at a forward PE of 10.84, and the company’s PEG of 1.28 is pretty tame as well.  Macy’s has a price-to-sales ratio of 0.44, so it may be undervalued right now. 

In the last two months, six analysts have raised their earnings expectations for the current quarter.  No analysts have revised their expectations lower for this quarter.  Current year expectations were revised upwards unanimously as well, and this has helped our current year EPS estimate to rise by 4% over the last 60 days.  Macy’s has topped our EPS estimates from each of the last four quarters.  Just last quarter, the retailer beat our consensus estimate by 35%.

Best Buy Co. Inc-(BBY - Analyst Report)

Best Buy is a multinational electronics retailer.  The company operates retail stores and commercial websites under brands that include Media Play, On Cue, Sam Goody, Suncoast, Magnolia Hi-Fi, and Future Shop.  Best Buy is a Zacks Rank #2 (Buy) and it gets an “A” for Value and Growth in our Style Scores.  It’s worth noting that BBY doles out a 2.95% dividend to shareholders.

Best Buy’s stock trades at a forward PE and PEG of 12.51 and 1.24 respectively.  Shares could be an especially intriguing bargain right now since the retailer has price-to-sales of just 0.3.   This value also comes with a sound capital structure that has debt-to-equity of just 0.31.  BBY’s EPS is forecasted to grow by 9% this year.

In the last 60 days, there has only been one negative EPS revision from an analyst for the current year.  10 other analysts pushed their estimates upwards, and this has helped move our fiscal year consensus from $2.88 to $3.04.  Best Buy beat our earnings expectations in every quarter out of the last four.  In each of the last two quarters, BBY has beaten our consensus estimate by at least 25%.

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