We recently compiled a list of the Jim Cramer’s List of Stocks that Finished Dead Last. In this article, we are going to take a look at where Dollar Tree, Inc. (NASDAQ:DLTR) stands against the other Jim Cramer stocks that finished dead last.
In a recent episode of Mad Money, Jim Cramer examined market trends of the third quarter. He first discussed that while high interest rates and a cash-strapped consumer typically signal good fortune for dollar stores, this time was different.
Dollar stores are grappling with substantial challenges, primarily stemming from inflation. Cramer emphasized that rising prices have made it increasingly difficult for these retailers to maintain their signature one-dollar pricing model.
Moreover, he explained that historically, dollar stores are expected to decline when the economy improves, and that happens when the Federal Reserve begins to cut interest rates. However, a more pressing issue is that dollar stores are now facing more savvy consumers who have discovered better deals at larger retailers.
Cramer went on to discuss the necessity for the stock market to be driven by new companies, rather than relying on established leaders primarily associated with artificial intelligence, which are now experiencing diminished momentum. He said:
“You want to find a bunch of former market darlings? I want you to take a look at the bottom of the S&P 500 for this quarter.”
He remarked on the irony of the situation, suggesting that investors have spent considerable time believing that simply investing in anything linked to AI would guarantee success. He pointed out that recent market activity has shown that backing the wrong AI-related stock could lead to significant losses.
He cautioned that the days of going on autopilot with the Magnificent Seven are over. Those stocks had remarkable runs earlier in the year, but Cramer insisted that it is now essential to welcome new players into the market to reach new highs.
Lastly, he added:
“One thing’s certain, Wall Street, the complex of analysts, money managers, corporate finance traders, they missed out big this quarter, didn’t they? They still act like the new losers will be winners soon enough while the new winners are all one-hit wonders. I say, dream on. This move could be here to stay.”
Our Methodology
For this article, we compiled a list of 5 large stocks that underperformed during the third quarter and were mentioned by Jim Cramer during his episode of Mad Money on October 1. We listed the stocks in descending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
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).
A shopper browsing through a discount retailers merchandise aisle filled with a wide variety of items.
Dollar Tree, Inc. (NASDAQ:DLTR)
Number of Hedge Fund Holders: 38
Dollar Tree, Inc. (NASDAQ:DLTR) runs retail discount stores. The Dollar Tree segment is characterized by its fixed pricing model, where items are sold at $1.25. The segment offers a broad selection of consumables, including food, health, and personal care products, household items, and seasonal merchandise targeted at various holidays.
The Family Dollar segment serves a different market niche, focusing on general merchandise. It provides a diverse range of consumables alongside household supplies, apparel, and seasonal items. It also offers consumer electronics and school supplies.
During his episode, Cramer said, “The fourth and fifth worst-performing in S&P: Dollar General and Dollar Tree.”
Despite its extensive offerings, Dollar Tree (NASDAQ:DLTR) is currently navigating a challenging retail industry. The company has observed a decline in discretionary spending as consumers prioritize essential items over higher-margin products. It has intensified competition from rival retailers, which has led to the company rethinking its approach.
The company launched a thorough review of its store portfolio during the fourth quarter of fiscal 2023. The evaluation sought to identify stores suitable for closure, relocation, or rebranding based on current market dynamics and individual store performance.
The review revealed approximately 970 underperforming Family Dollar locations, which led to the decision to close around 600 of these stores in the first half of fiscal 2024. Additionally, about 370 stores will close at the end of their current lease terms.
Further complicating matters, Dollar Tree (NASDAQ:DLTR) announced a formal review of strategic options for the Family Dollar segment. The process may explore potential sale opportunities, spin-offs, or other disposals of the business. While there is no fixed deadline for this review, the company is actively assessing its options.
As of August 3, the company had already closed around 655 stores identified in the optimization review and plans to close an additional 45 stores by the end of fiscal 2024.
Baird Mid Cap Growth Equity Strategy stated the following regarding Dollar Tree, Inc. (NASDAQ:DLTR) in its Q2 2024 investor letter:
“Consumer discretionary performance was the quarter’s largest detractor. Thematically, our holdings in retail and in particular value retail hurt due to greater-than-anticipated operating challenges amid the persistent inflationary environment. In addition, our expectation that value-based retailers would benefit from consumers trading down, spurring revenue and new customer growth, has not yet materialized in a meaningful way. Of note, Dollar Tree, Inc. (NASDAQ:DLTR) and Five Below delivered disappointing performance.”
Overall DLTR ranks 1st on our list of Jim Cramer stocks that finished dead last. While we acknowledge the potential of DLTR 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 DLTR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
