How 2024 Tax Refunds Could Impact Your Investment Strategy

As the 2024 tax season kicks off on Monday, the anticipation surrounding tax refunds is palpable—not just for taxpayers, but also for savvy investors looking for promising stock opportunities. Here at Extreme Investor Network, we’ve sifted through the details to offer you unique insights into how this year’s tax refunds might affect specific stocks and sectors, providing you with a potential roadmap for actionable investments.

What’s Changing in 2024?

According to Wolfe Research, 2024 could see flat to slightly higher tax refunds compared to last year. This potential for increased refunds can be attributed to the Internal Revenue Service (IRS) raising tax bracket thresholds by roughly 5% and increasing standard deductions. These adjustments, designed to keep pace with inflation, are particularly beneficial to lower- to middle-income taxpayers—groups that typically see the largest volume and frequency of tax refunds.

Chris Senyek, Wolfe’s chief investment strategist, notes that substantial refunds often arrive by mid-February, primarily influenced by the popular Additional Child Tax Credit (ACTC) and Earned Income Tax Credit (EITC). This influx of capital could lead to enhanced consumer spending, especially in retail sectors that cater to lower-income households. But which stocks stand to gain the most?

Stocks to Watch: Retailers Positioned for Growth

Based on Wolfe’s analysis, we see some specific retailers that could capitalize on this uptick in consumer spending due to increased tax refunds:

1. Walmart (WMT)

Walmart has consistently ranked high on analysts’ lists, and for good reason. Over the past year, shares have soared by 77%. Bank of America recently reiterated its buy rating on Walmart, lifting the price target to $110. This success is driven by their ability to cater to a diverse consumer base, and the retail giant is starting to gain traction among households with incomes exceeding $100K as well. With 40 of the 43 analysts covering Walmart rating it a buy or strong buy, the consensus price target suggests nearly 6% upside from current levels.

2. Ross Stores (ROST)

If you’re looking for a value play, consider Ross Stores, which has risen more than 7% over the past year. Analysts highlight its status as "most undervalued" within its competitive set, with shares currently trading at a significant discount compared to peers like Burlington and TJX, whose multiples stand at 31x and 27x, respectively. With 13 out of 22 analysts rating it a buy or strong buy, the stock presents a compelling entry point, particularly as it navigates a challenging retail landscape.

3. Five Below (FIVE)

Five Below has had a more turbulent year, with shares down 48% in the past 12 months. However, there appears to be a silver lining. Analyst Edward Kelly of Wells Fargo is optimistic about its turnaround potential and highlights that the company has delivered stronger-than-expected holiday results. While Wall Street remains neutral on this stock, with 13 out of 24 analysts rating it a hold, consensus price targets suggest more than 26% upside. If Five Below successfully executes its strategy under new leadership, it could become an attractive option in 2025.

Conclusion: Capitalizing on Consumer Behavior

As we gear up for the tax season, the adjustments made by the IRS and the potential for increased refunds are factors that investors should monitor closely. The possibilities for investing are rife, especially within the retail sector. By focusing on companies like Walmart, Ross Stores, and Five Below, you can position yourself to take advantage of the consumer spending surge that follows the tax refund wave.

Here at Extreme Investor Network, we’re committed to empowering you with the information you need to make informed investment decisions. Stay tuned for more insights and analysis as we navigate the ever-changing world of investing together. Happy investing!