We recently compiled a list of the 10 Oversold Blue Chip Stocks to Buy Now. In this article, we are going to take a look at where Dollar General Corporation (NYSE:DG) stands against other oversold blue chip stocks.
Market experts believe that, so far, 2024 continues to be a strong year for the broader stock market. With the predictions of rate cuts, some strategists opine that next year can be another year for the equities. On a YTD basis, the S&P 500 saw an increase of over ~22%. On a related note, Fidelity Investments (in the note dated October 16, 2024) highlighted that equities rallied in Q3 2024, courtesy of real estate, US value, and some small-cap stocks. While volatility increased in August, it decreased later. This led to a productive September.
Fidelity Investments went on to say that the US labor market demonstrated signs of cooling. However, it remained strong overall. Despite some softness in manufacturing, some of the major global economies continued to expand. Elsewhere, in China, new policies to fuel stock prices were rolled out. While the positive impact was seen in the Chinese equities post the stimulus measures, there remains some uncertainty regarding the long-term impact.
Factors to Watch Out For in 2025
With 2024 approaching an end, global investors continue to wonder about the factors that might influence the broader financial markets in 2025. The markets are intertwined, making US stocks more sensitive to several factors. Forbes reported that the results of the 2024 presidential election, domestic inflation and rates, technology innovation, economic trends, and elevated geopolitical tensions are some of the factors likely to influence the financial markets
As per TradingBlock, the tariff measures, together with a national deficit, are some of the critical issues for the next president. While the new tariffs can slow down the broader US economy, the deficit, if left unchecked, might lead to continued devaluation of the U.S. dollar. Also, a slowdown of the US economy might result in inflation worries.
Some market experts continue to worry about the Chinese economy. As per SALT Venture Group, the slowness in China can be a constraint for the stock market growth in the next year. This is because this slowdown can weaken the demand for US exports. As per CEIC, the US total exports to China sat at ~$12.618 billion in August 2024.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
What to Expect from the Stock Market in 2025?
Forbes reported that experts are predicting stock market growth to vary in the range of a 5% decline to growth of 20% in 2025. However, some experts believe that a 10% increase is expected to be the most likely scenario. UBS expects that the stock market is on track for another year of double-digit gains. The strategists made a bullish call for stocks, projecting that the S&P 500 is expected to touch 6,600 by next year’s end. The firm went on to add that the increase is expected to be aided by a “no landing” for the economy.
The improved US macroeconomic outlook has increased the bank’s degree of certainty about the positive view of equities. Notably, the job market continues to be resilient amidst tighter financial conditions and elevated interest rates. Investors might witness some volatility because of the November election, but it’s unlikely that it will be a hurdle to more positive market drivers.
An investor consulting with their financial advisor to make the best investment decision for their mutual fund.
Our Methodology
To list the 10 Oversold Blue Chip Stocks to Buy Now, we extracted the companies that have a market cap of over $10 billion by using a Finviz screener. After getting an initial list of 25-30 stocks, we chose the ones trading at a forward P/E multiple of less than 15.0x and which have fallen significantly on a YTD basis. Finally, the stocks were ranked in the ascending order of their hedge fund sentiments, as of Q2 2024.
Why are we interested in 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).
Dollar General Corporation (NYSE:DG)
Market cap (As of 25 October): $17.6 billion
Forward P/E (As of 25 October): 12.36x
% Decline on a YTD Basis: ~42%
Number of Hedge Fund Holders: 42
Dollar General Corporation (NYSE:DG) is a discount retailer, providing various merchandise products in the southern, southwestern, midwestern, and eastern US.
Dollar General Corporation (NYSE:DG) is focusing on a back-to-basics approach. This means that it is targeting core operations and enhancing customer value. Wall Street believes that the company’s efforts to improve price positioning relative to Walmart should help it in the near term, providing a competitive edge. The enhanced price competitiveness, streamlining of operations, and strengthened brand perception should drive topline growth.
Over the long term, Dollar General Corporation (NYSE:DG) is expected to be aided by its dense store network, which served as an intangible asset because of its convenient fill-in shopping locations throughout rural communities. Also, the company’s impressive scale and proximity to consumers, favorable product mix, and small basket size should help the company in tackling challenges from e-commerce competition.
As Dollar General Corporation (NYSE:DG) anticipates net sales growth, same-store sales growth, and investments in markdowns to continue, it believes that the business model remains resilient and is committed to executing a foundational back-to-basics plan. The company plans to increase efforts to gain more market share. Also, Dollar General Corporation (NYSE:DG) is focused on reducing shrink and simplifying operations in a bid to improve margins.
The shares of the company have an average price target of $102.55. Heartland Advisors, an investment management company, released its third-quarter 2024 investor letter. Here is what the fund said:
“The convenience store operator Dollar General Corporation (NYSE:DG) was our worst performer during the quarter. The retailer, with more than 19,000 stores, 80% of which are in rural towns with populations of less than 20,000, recently slashed its 2024 earnings guidance, sparking a late-summer sell-off.
Same-store comparable sales and margin guidance were cut meaningfully, implying a significant slowdown in the second half of the year. While some of the troubles may be due to the financial challenges of its core customers, with average incomes of just $35,000, Dollar General is also losing market share because of Walmart’s initiative to reduce entry-level pricing. Management acknowledged a need to invest in promotions to stimulate demand, but they refute concerns that DG needs to invest more in store-level labor.
We exited the position and harvested the tax losses, but we continue to monitor the company’s fundamentals. We’re looking for comparable sales to stabilize driven by promotional activity, a boost in labor investments, and management to downsize store expansion plans to improve free cash flow generation and accelerate deleveraging efforts.”
Overall, DG ranks 3rd on our list of 10 Oversold Blue Chip Stocks to Buy Now. While we acknowledge the potential of DG as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than DG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
