We recently compiled a list of the 7 Best Buy-the-Dip Stocks to Invest In. In this article, we are going to take a look at where Dollar General Corporation (NYSE:DG) stands against the other buy-the-dip stocks.
It’s every investor’s goal to buy a stock well poised to beat the average return of market indexes. However, with valuations getting out of hand after one of the longest bull runs, very few stocks offer significant upside potential. Nevertheless, some stocks have been battered by deteriorating economic conditions fueled by higher for longer rates.
While it might seem too late to buy stocks with major indices led by the Nasdaq 100 and S&P 500 flirting with record highs, there are still stocks that have been left out from the rallies. Buying the dip is a proven strategy for risk-tolerant investors who are always looking to take action during market downturns.
READ ALSO: 7 Best Beaten Down Stocks to Invest In and Billionaire Carl Icahn’s Top 10 Stocks.
The strategy allows one to buy low when fear has taken over after a deep pullback. It is particularly an effective investment strategy for long-term investors looking to hold stakes in quality stocks for the long haul.
As depicted by the Institute for Supply Management, manufacturing production in the biggest economy slowing down in August is the latest sign that all is not well. Disappointing data with ISM dropping to 47.2 from 48 is the latest sign of slowing growth within the US economy.
According to Larry Tentarelli, chief technical strategist at the Blue Chip Trend Report, the market is expected to be choppy and volatile as it has become data-dependent. Consequently, now would be the best time to be highly cautious, focusing on high-value targets trading at discounted valuations.
On the other hand, Fundstrat’s head of strategy, Mark Newton, believes the market is flashing a handful of signs that there is more upside on the way even as the major indices remain at record highs. According to the analyst, any tech-driven stock pullback presents an ideal buy opportunity on the dip. According to the equity analyst, looking to buy dips makes sense technically, especially for small-cap stocks that look appealing after their recent slide.
The deep pullback in some stocks amid growing concerns about the health of the US economy presents one of the best opportunities to buy the dip of quality stocks trading at discounted valuations. Growth stocks are some of the best, given their track record in outperforming the market.
Certain high-value stocks that have traditionally been steady have recently suffered due to a mix of increasing inflation and high interest rates. In a similar vein, in 2024, there was a shift among investors from big tech firms to smaller, more volatile stocks. Spotting these declines could offer a chance to invest in major companies trading at discounted valuations.
Our Methodology
To make our list of the best buy-the-dip stocks to invest in, we first made a list of stocks in various industries that are trading near their 52-week lows or have pulled back significantly from their 52-week highs. We checked the hedge fund sentiment around 15 stocks with the largest market caps and then selected the 7 stocks that were the most popular among hedge funds. We then ranked the stocks in ascending order based on the number of hedge funds that hold stakes. Our list contains some of the highest quality companies in different industries including mining, energy, consumer staples, retail, aerospace, tech, and more.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A busy shopping aisle filled with discounted items in a retail store.
Dollar General Corporation (NYSE:DG)
52 Week Range: $82.68 – $168.07
Current Share Price: $83.79
Number of Hedge Fund Holders: 42
Market Capitalization as of September 4: $18.42 Billion
Dollar General Corporation (NYSE:DG) is one of the best buy-the-dip stocks to invest in as a consumer defensive investment play. Operating as a discount retailer, it provides consumable products, including paper, cleaning, and food items.
It is one of the retailers that has felt the full wrath of deteriorating economic conditions amid the high interest rates. The company delivered second-quarter results that fell short of expectations, with earnings of $1.70 against the expected $1.79 share. Revenues, on the other hand, totaled $10.21 billion against $10.38 billion expected.
The underperformance came as the discount retailer’s lower-income customers struggled amid the current economic conditions. The retailer is also feeling the pressure as deep-pocketed retailers double down on offering low-priced daily essentials.
Nevertheless, Dollar General Corporation (NYSE:DG) is moving to curb the losses and improve its profit margins by improving its stores and how it handles inventory. The store’s efforts to enhance its appeal are part of its plan to deal with the financial challenges affecting its clientele.
Additionally, Dollar General Corporation (NYSE:DG) is one of the companies well positioned to benefit from the US Federal Reserve cutting interest rates in September and up to 75 basis points by the end of the year. The interest rate cuts are expected to boost liquidity in the market, which should benefit most of its customers, therefore driving sales.
With the retailer trading close to its 52-week lows, it is one of the best buy dips, trading at a discount with a price-to-earnings multiple of 11. Additionally, the company comes with a 2.82% dividend yield for generating some passive income on the side.
In the second quarter, 42 hedge funds included Dollar General Corporation (NYSE:DG) in their 13F filings, with a combined stake value of $1.55 billion.
Overall DG ranks 4th in our list of the buy-the-dip stocks to invest in. While we acknowledge the potential of DG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DG, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
