Uncovering Hidden Gems: Two Retail Stocks Trading at Multi-Year Lows
For investors seeking extreme value opportunities, looking beyond stocks trading near their 52-week lows may be necessary. Instead, consider stocks that have fallen to multi-year lows, offering potential for significant upside. However, it’s essential to acknowledge the inherent risks associated with these investments.
Dollar General: A Contrarian’s Dream?
Dollar General (NYSE: DG) and Kohl’s Corporation (NYSE: KSS) are two retail stocks that have underperformed the market, with share prices plummeting over 40% since the start of the year. Dollar General’s stock hasn’t been this low since 2017, and Kohl’s hasn’t seen such lows since the early days of the pandemic in 2020.
The Case for Dollar General
Despite facing headwinds, Dollar General continues to generate profits and trades at a modest forward price-to-earnings (P/E) multiple of 12. The company’s ability to open new locations and maintain low single-digit same-store sales growth has allowed it to weather the storm. While concerns surrounding working conditions and slowing revenue growth persist, the business has levers to pull to improve profitability. With over 20,000 stores, Dollar General could close underperforming locations to boost earnings. As interest rates decline, consumers may enjoy increased discretionary income, benefiting Dollar General’s stores.
Kohl’s: A Riskier Proposition
Kohl’s recent earnings report was disastrous, with sales and profits declining significantly. The stock trades at a forward P/E of seven, making it even cheaper than Dollar General. However, Kohl’s reliance on discretionary purchases and uncertainty surrounding its new CEO and strategy make it a riskier option. With analyst estimates subject to change, the forward P/E multiple could increase, making the stock less attractive.
A Word of Caution
Before investing in either Dollar General or Kohl’s, consider the risks involved. While both stocks offer deep discounts, it’s essential to weigh the potential rewards against the potential pitfalls. For Kohl’s, it may be wise to wait and observe the company’s direction under new leadership before making a decision.
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