Value Investor Daily #69

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Happy Thanksgiving! This year, we’re grateful for YOU reading our humble publication—thank you!

Here are some retailer stock ideas for after today’s Thanksgiving feast. Enjoy!

Consumers are projected to spend the most ever this holiday shopping season, almost a trillion dollars.

Retail sales from Black Friday through Cyber Monday are projected to reach $75 billion, a 5% increase from last year.

From big-box retailers to smaller platforms like Etsy, companies are positioning themselves to capitalize on this monumental weekend.

Thanksgiving has long been synonymous with family gatherings and a traditional meal. However, economic pressures such as inflation and stagnant wage growth have forced consumers to reassess their spending priorities.

While the cost of a typical Thanksgiving dinner for ten has decreased slightly to $58.08 this year, it remains 19% higher than pre-pandemic levels in 2019.

At the same time, Black Friday has emerged as a cornerstone of the holiday shopping season, with consumers eager to take advantage of significant discounts to offset rising prices.

This year, Black Friday online sales alone are expected to hit $10.8 billion, up 9.9% from 2023.

Major retailers like Amazon, Walmart, Costco, and Target are poised to benefit from the spending boom.

But let’s look at some of the smaller retailers.

1. Macy’s (Ticker: M, P/CF Ratio: 3.76)

Macy’s continues to face challenges as it transitions toward a more digital-first strategy. Despite these hurdles, its low price-to-cash-flow ratio of 3.76x suggests the stock may be undervalued. But you’ve got time on this one. Earnings are not expected to rebound until 2028, and a lot can happen between now and then.

2. Kohl’s (Ticker: KSS, P/CF Ratio: 2.01)

Kohl’s is undergoing a brand overhaul and leveraging partnerships to attract new customers. Its low forward P/E ratio of 10.6x reflects market skepticism, but successful execution of its turnaround strategy could lead to substantial gains. But again, analysts don’t see significant earnings growth until 2028.

3. The Gap (Ticker: GPS, P/CF Ratio: 5.79)

The Gap is restructuring its business to improve profitability. With a P/E ratio of 11x, the company offers a potentially compelling opportunity for value investors, assuming its strategic initiatives yield positive results. Analysts project $3.14 of earnings per share by 2030, up from $1.43 in 2024.

4. Best Buy (Ticker: BBY, P/CF Ratio: 10.91)

Best Buy has adapted well to changing consumer behaviors, focusing on its online sales performance. Its P/E ratio of 15 suggests it may still have some upside. The company has aggressively returned cash to shareholders, buying back 38% of shares since 2015. The company announced earnings last week, slightly missing the top and bottom lines and leaving guidance nearly unchanged for 2025. The company yields a 4.2% dividend. It plans to buy back $500 million of stock next year, or 2.6% of the current market cap. That implies a total forward shareholder yield of around 6.8%. Earnings are expected to accelerate again in 2027-2028.

The projected $75 billion in Black Friday weekend sales underscores the resilience of U.S. consumer spending, even in the face of economic headwinds. The U.S. economy grew at an annualized rate of 2.8% in Q3 2024, driven by robust consumer activity. However, rising credit card usage to finance holiday purchases has raised concerns among economists.

Shoppers plan on spending $1,778 this holiday season, up 8% from last year. However, a NerdWallet survey found that 28% of holiday shoppers are still paying off last year’s gifts.

Never bet against the American consumer. Even when in debt, we are optimistic and eager to shop!

Thank you for reading today!

Happy Investing,
Value Investor Daily

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