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Hedge Funds Are Buying 8 Retail Stocks as Consumer Sentiment Holds Steady

James Dennin, Kapitall: Consumer confidence held steady despite the weather, and institutional investors are snapping up retail stocks. 

Consumer confidence has  held up in February, according to the University of Michigan Consumer Sentiment index. Many analysts were expecting a small decline, in part due to atrocious weather.

People are less likely to spend in winter conditions – and investors assumed that consumers would be discouraged from shopping by the series of major storms that have dumped the most snow on the East coast in almost a decade. 

The fact that consumer confidence held steady, while perhaps not as exciting as if it had gone up, is a boon to the economy. Consumer sentiment doesn't just predict how likely people are going to be to spend, it's an important gauge as to whether typical consumers approve of the direction of the economy.

It's also possible that recent mergers and acquisitions are fueling excitement after a sluggish January.

Investing Ideas

If you think the market has been hard on the retail sector, it might be time to consider the stocks working in this space. Valuations are low, probabably due to investor excitement over e-commerce compared to brick and mortar stores. 

The oldest rule in the investing book is to buy low, sell high. So first we screened retail stocks using valuation metrics. We found 6 with a price to sales ratio below 1, which is considered low; and 4 with a price of profit (POP) below 15. 

Next we searched for companies that were experiencing spikes in institutional purchasing from firms like hedge funds or private equity funds. Our results included 8 stocks, with increases in institutional purchases in the most recent quarter of at least 5%. This indicates that institutional investors expect these retail stocks to outperform into the future

​Click on the interactive chart to view data over time. 

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