Stocks to buy

At first, glance, recommending retail stocks might seem puzzling to investors amid looming recession concerns. Hence, under the current circumstances, investors can scoop up some of the best undervalued retail stocks to buy at substantial bargains.

The onset of the pandemic saw many investors diving into retail stocks. However, the stock market rout in 2022 saw many of the top retail stocks losing a ton of value amid concerns that the spending boom had ended, with a recession fast approaching.

The National Retail Federation (NRF) predicts slower growth in U.S. retail sales amidst recession fears and banking industry tremors. Despite the relatively somber forecasts, the NRF highlights that consumer spending remained resilient in the first quarter. Moreover, with a recession possibly looming, many consumers would want to stock up, potentially pushing retail stocks higher. That said, here are three of the best undervalued retail stocks.

CPNG Coupang $15.64
LULU Lululemon $364.81
FTCH Farfetch $4.36

Undervalued Retail Stocks to Buy: Coupang (CPNG)

% Below 52-week high: 27%

Source: Michael Vi / Shutterstock.com

Coupang (NYSE:CPNG) is one of the top players in the South Korean eCommerce sphere, operating in markets with massive potential for long-term growth. The Korean eCommerce market has a colossal growth runway ahead, expected to grow to $291 billion by 2025, a 48% bump from 2021. Moreover, it is also exploring Southeast Asian markets, such as Taiwan, a market poised for an impressive 10% growth over the next five years.

Unlike its peers, operating a growth-at-all-costs strategy, Coupang has done incredibly well in improving its profitability metrics. It recognizes the importance of supply chains and logistics, so it took it all in-house. Consequently, it boasts one of Korea’s strongest supply-chain infrastructure footprints covering 47 million square feet.  Thanks to its efforts, the company’s profitability has been improving at a healthy pace, with gross margins increasing from 5% in fiscal 2018 to 22% in fiscal 2022.

With its stock down over 20% from its 52-week high price, CPNG is poised for a substantial upside ahead.

Lululemon (LULU)

% Below 52-week high: 12.8%

Source: lentamart / Shutterstock

Lululemon (NASDAQ:LULU) is an upscale athleisure brand selling athletic apparel and accessories. Though its claim to fame was its yoga pants, it has forayed into tops, shorts, jackets, and other items. Unlike its peers, it continues to post double-digit growth across both lines due to its effective Asian sourcing strategy and affluent customer base.

LULU continues to wow investors with its fundamentals, which showed a 30% and 29% improvement in sales and earnings per share, respectively, compared to 2021. Moreover, with the reopening of China, it aims to increase store counts by double-digit margins by 2026, driving robust growth from the region. Another key catalyst is its men’s category which amounts to over $1.5 billion in sales. By 2026, it is estimated that the category will generate roughly $3 billion in sales.

Based on its solid growth prospects, it will continue to deliver on its “Power of Three ×2” growth strategy, which could see revenues growing by more than 50% through 2026.

Farfetch (FTCH)

% Below 52-week high: 74%

Source: nikkimeel / Shutterstock.com

Farfetch (NYSE:FTCH) is a popular eCommerce luxury platform that connects customers with a huge network of more than 1,000 boutiques and brands across the globe. It offers a curated shopping experience for luxury fashion enthusiasts. It’s in pole position to continue benefitting from the substantial growth expected in the luxury fashion industry.

The supply-chain bottlenecks in the Chinese market and its exit from Russia have negatively impacted company sales in recent quarters. To be fair, its underperformance has been driven by an exceptionally adverse macroeconomic mix rather than company-related factors. Furthermore, it has enough cash to come out of the recession relatively unscathed.

The company’s stock soared to an impressive $70 before plummeting to $4 in 2022. Analysts at Tipranks point to a 133% upside from current price levels.

On the date of publication, Muslim Farooque 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.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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