Two stocks to buy at discount prices

This pair has been affected by Trump’s tariff policy, but analyst Rodney Hobson thinks they’re cheap enough now to be a decent recovery play.

11th June 2025 07:33

Rodney Hobson from interactive investor

American retailers are starting to get twitchy about the possible impact of the Trump tariffs on the supply of goods they sell, especially as there are mixed signals on the US economy. Jobs figures showed that employment is holding up remarkably well, with more people than expected finding employment so far this year, but the shrinking of the economy in the first quarter cannot be ignored.

President Donald Trump tried to blame the contraction on President Joe Biden, but that excuse is wearing a bit thin given the flurry of economic activity that has characterised the Trump Administration in its first few weeks. We have to learn to live with a more quixotic approach to governing – and so too do the retailers.

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Department store Macy's Inc (NYSE:M) has lowered its guidance for profits for this financial year because it is unsure what impact higher tariffs will have on consumer demand. Chief executive Tony Spring pointed out that higher prices from higher tariffs had little if any impact in the first quarter but were already creeping in by the end of May, albeit slowly. This is ominous, since the full impact of increased tariffs was delayed by heavy stockpiling at the start of 2025. After all, there was plenty of warning of the storm to come.

Macy’s sources about a fifth of its goods from China, the object of Trump’s major ire. It now faces the disruption of finding suppliers in other countries – which may still be subject to tariffs, albeit lower ones - and where possible renegotiating deals with existing suppliers.

Net sales for the three months to 3 May were down 5.1% to $4.6 billion even after allowing for store closures, although this was slightly better than analysts feared. Net income slumped 39% to $38 million, and the company itself has reduced full-year guidance from at least $2.05 a share to at most $2 and possibly as little as $1.60.

The main problem is the core Macy’s brand, where sales have fallen for 12 consecutive quarters. The group plans to concentrate on its better-performing Bluemercury beauty and skincare products and its Bloomingdale’s luxury goods outlets.

Source: interactive investor. Past performance is not a guide to future performance.

Macy’s is not the only US retailer to be warning of tough times ahead. Abercrombie & Fitch Co Class A (NYSE:ANF) also lowered annual profit expectations although there was considerable consolation in record first quarter net sales, up 8% to $1.1 billion in the quarter to 3 May, with increased sales in all regions. Alas, net earnings were down from $2.14 to $1.59 a share, as operating margins shrunk from 12.7% to 9.3%.

Last month Walmart Inc (NYSE:WMT) warned that higher tariffs would translate into higher prices, starting in May and becoming more pronounced. This was despite Walmart’s ability as the largest retailer in the world to push down supply costs, benefit from technical innovations and run an efficient supply and distribution chain.

Macy’s shares almost touched $35 in 2021 but have been on the slide since, despite possible bid interest in 2023. They look to have bottomed out around $11 as they did last year and currently stand at $12.34, where the price/earnings (PE) ratio is only 6.2 while the yield is a tempting 5.7%.

Abercrombie was $188 a year ago but has fallen heavily this year and is now $81, having bottomed at $71. The PE is only slightly higher than Macy’s at 8.1 but there is no yield to offer consolation.

Source: interactive investor. Past performance is not a guide to future performance.

Hobson’s choice: In December 2023, Macy’s was subject to a buyout offer at just under $20 and I advised investors to hold on for better. The offer was revised up twice to reach $24.80 but that was as good as it got and talks with the Macy’s board were discontinued the following July. At half the putative bid price there is more than enough bad news factored in. Buy for recovery.

Abercrombie stock should also continue to recover but it has many stores in Canada where anti-American feeling is highest. It just about rates a buy.

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.

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