## Situation Analysis
The stock market is at a critical juncture as we enter September 2024. While AI stocks have dominated headlines and driven much of the market’s gains this year, there’s a growing sentiment that a rotation is underway. The so-called “Magnificent Seven” stocks (**Apple**, **Microsoft**, **Amazon**, **Alphabet**, **Meta**, **Nvidia**, and **Tesla**) have shown signs of underperformance relative to the broader market since mid-July.
This shift coincides with expectations of upcoming interest rate cuts by the Federal Reserve. As Chris Igou notes in his recent DailyWealth article, the materials sector is breaking out, signaling a potential change in market leadership. Meanwhile, Luke Lango argues that consumer stocks are particularly well-positioned to benefit from this changing economic landscape.
The consumer sector is especially worth watching for several reasons:
1. Expected interest rate cuts could boost consumer spending and borrowing.
2. Recent earnings reports from several retailers have shown resilience in consumer spending.
3. Consumer stocks have lagged behind the broader market rally, potentially offering value opportunities.
4. A robust consumer sector could signal a “soft landing” for the economy, avoiding a recession.
Given these factors, let’s examine two consumer stocks that our network of experts believe are poised for a comeback.
## 1. Nordstrom (JWN)
### Nordstrom (JWN): Unlocking Potential Despite Market Challenges
Luke Lango, in his recent InvestorPlace article **[The Best Consumer Stocks to Buy Outside of AI](https://investorplace.com/hypergrowthinvesting/2024/08/the-best-consumer-stocks-to-buy-outside-of-ai/)**, highlights **Nordstrom** as a potential winner in the consumer space. Lango notes that **Nordstrom**, along with other retailers, reported positive sales growth and positive comparable sales in their latest earnings reports.
Consumer spending has slowed meaningfully over the past two years and especially here in 2024 as higher rates have started to bite consumers. Throughout 2022, retail sales growth ran north of 5%. In 2023, retail sales growth slowed to about 3.6%. In 2024, the average retail sales growth so far has been about 2.5%.
Luke Lango
However, he believes this trend is about to reverse, stating, “That will change over the next two years. Lower rates will help reawaken the consumer and unlock accelerated retail sales growth.”
### Analysis and Outlook
While Lango’s optimism is encouraging, it’s important to approach **Nordstrom** with some caution. The company has faced challenges in recent years, including changing consumer preferences and increased competition from e-commerce giants. However, **Nordstrom**’s recent positive sales growth suggests that its efforts to adapt may be paying off.
**Nordstrom**’s focus on both full-price and off-price segments (through Nordstrom Rack) could position it well to capture spending across different consumer demographics as the economy potentially strengthens. Additionally, its investments in e-commerce and omnichannel retail could help it compete more effectively in the evolving retail landscape.
Investors should watch for **Nordstrom**’s ability to maintain its sales momentum and improve profitability as we move into a potentially more favorable economic environment for retailers.
### Analyst Ratings
| Metric | Value |
|---|---|
| Consensus Rating | Hold |
| Average Price Target | $24.14 |
| Potential Gain | 14.1% |
| Number of Ratings | 17 |
Analysts have a mixed outlook on **Nordstrom**, with a consensus rating of “Hold”. While some analysts believe the company’s efforts to transform its business and improve profitability will bear fruit, others are concerned about the competitive retail landscape and **Nordstrom**’s ability to execute on its strategy. The average price target suggests a potential gain of 14.1% from the current price, indicating that some analysts see upside potential.
This cautious optimism from analysts aligns with our assessment. While **Nordstrom** shows promise, investors should remain vigilant and monitor the company’s progress in executing its transformation strategy.
## 2. Abercrombie & Fitch (ANF)
### Abercrombie & Fitch (ANF): Fashion-Forward and Profitable?
Luke Lango also mentions **Abercrombie & Fitch** in his article, noting its positive sales performance. While he doesn’t provide specific analysis on **ANF**, his overall thesis on consumer stocks applies: “As consumer spending reaccelerates in 2025/26, consumer stocks should benefit from strong earnings growth. Earnings per share across the S&P 500 Consumer Discretionary sector are expected to rise 12% in 2025 and 14% in 2024, for nearly 30% growth over the next two years.”
Chris Johnson, in his Money Morning article **[Three Stocks: CrowdStrike, Affirm & Sofi](https://moneymorning.com/2024/08/29/three-stocks-crowdstrike-affirm-sofi/)**, while not directly discussing **Abercrombie & Fitch**, provides insights into the broader fintech and consumer lending space that could indirectly benefit retailers like **ANF**. He notes, “The Federal Reserve is expected to lower their target lending rate by 0.25-0.50% on September 18. That drop of interest rates will result in an increase in lending activity for companies like Sofi and other banking institutions.”
### Analysis and Outlook
**Abercrombie & Fitch** has undergone a significant transformation in recent years, moving away from its controversial image of the past and repositioning itself as a more inclusive, trend-forward brand. This strategy appears to be paying off, as evidenced by its recent positive sales performance.
The expected interest rate cuts could benefit **ANF** in two ways:
1. Increased consumer spending power could drive higher sales.
2. Lower borrowing costs could improve the company’s profitability and ability to invest in growth initiatives.
However, investors should be aware that the apparel retail sector remains highly competitive and subject to rapidly changing fashion trends. **ANF**’s ability to maintain its brand relevance and continue its positive momentum will be crucial.
The company’s focus on digital sales channels and its efforts to right-size its store fleet could position it well to capitalize on changing consumer shopping habits. As we move into a potentially more favorable economic environment for retailers, **ANF** could be well-positioned to outperform.
### Analyst Ratings
| Metric | Value |
|---|---|
| Consensus Rating | Hold |
| Average Price Target | $24.14 |
| Potential Gain | 14.1% |
| Number of Ratings | 14 |
Analysts have a neutral outlook on **Abercrombie & Fitch Co.**, with a consensus rating of “Hold”. The average price target suggests a potential upside of 14.1% from the current price. While some analysts see opportunities for growth, others are concerned about the company’s ability to navigate the challenging retail landscape.
This neutral stance from analysts underscores the potential risks and rewards associated with **ANF**. While the company has shown promising results from its transformation efforts, the competitive nature of the retail sector and potential economic uncertainties warrant a cautious approach.