Recent purchases of shares in U.S. retailers, from Warren Buffett’s Berkshire Hathaway Inc. to Bill Ackman’s Pershing Square Holdings Inc., signal contrarian bets on consumers amid concerns about a broader spending slowdown. Omaha-based conglomerate Berkshire announced a $266 million investment in Ulta Beauty in a regulatory filing last week, while billionaire investor Bill Ackman’s hedge fund disclosed a stake in Nike Inc. worth about $229 million. Both purchases took advantage of a stock offering this year that slashed the stock’s valuation. Meanwhile, the purchases come at a time of growing concerns about the U.S. consumer and a worsening economic outlook. Consumer sentiment unexpectedly fell to an eight-month low in July, according to the University of Michigan Consumer Confidence Index. The unemployment rate also rose slightly in July. But overall, hedge funds have been increasingly bullish on consumer stocks lately. Professional investors increased their exposure to the consumer goods sector in the second quarter, making consumer stocks the second-most overweight sector after technology, according to Morgan Stanley data. Stocks that hedge funds trade heavily in the sector include Wendy’s, Bath & Body Works, Wayfair and Under Armour, according to Morgan Stanley. Value Stocks Before Berkshire’s disclosure of its holdings boosted its shares, Ulta had fallen 32% in 2024 and was trading at just 12 times projected earnings, according to FactSet. The beauty supply chain has been hit by sluggish demand in the beauty category and growing competition from rival retailers such as Macy’s and Kohl’s. Sportswear retailer Nike suffered a 20% selloff in one day on June 28 after it lowered its full-year guidance and said it expects sales to fall 10% in its latest quarter. Nike fell 13.4% in the first quarter and another 19.8% in the second quarter. They then recovered 10.7% in the third quarter, but are still down 23% so far in 2024. ULTA NKE YTD mountain Ulta, Nike The real test for consumers could come this week, when some of the nation’s largest retailers, including Lowe’s, Target, Macy’s and TJX, report their quarterly earnings. Last week, Walmart reported strong profits and sales for the last quarter and raised its outlook, but issued some warnings for the second half of 2024.
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