This stock has a history of outperforming in down markets.
The stock market officially entered the correction territory this week, as the Nasdaq has dropped more than 10% since it reached over 20,000 on February 19.
Another down day on Friday has this shaping up to be the worst week since September, with the Nasdaq off about 4.6% as of early afternoon Friday, falling below 18,000. The S&P 500 was down 3.7% this week, while the Dow Jones was off about 2.8%
A combination of factors are causing markets to decline, including overvalued tech and growth stocks, weaker than expected economic numbers, tariffs, and a budding trade war.
March should indeed be an industry month, as inflation numbers come out next week and the Fed meets the week after. There is also one stock in particular that investors should keep their eye on this month, because of this uncertain environment.
Dollar General: Good stock for bad markets?
Dollar General (NYSE:DG), the discount retailer, has endured back-to-back brutal years, with its stock price down more than 20% in each of those years. Part of it has been mismanagement, lawsuits, and safety concerns. Another reason for the swoon is that Dollar General has been losing discount market share to Walmart in the last two years, which tends to happen when the economy is strong.
But Dollar General stock has done well this year, up about 7%, beating Walmart, Target, Dollar Tree and other deep discounters. It tends to outperform those rivals in more difficult economic environments, like it did in 2022 during the bear market. That year, Dollar General stock was up 6% while the overall market was down almost 20% and Walmart fell about 1%.
That’s because Dollar General is a deep discounter, even more so than Walmart. So, in times of high inflation and a slowing economy, like we saw during the 2022 bear market, more customers tend to flock to Dollar General from perhaps its slightly higher priced competitors.
With inflation rising, and potentially moving higher due to tariffs, and recession concerns re-emerging, this could be the type of economic environment that favors Dollar General over its competitors.
Dollar General zigs when market zags
Dollar General reports its fiscal fourth quarter earnings on March 13, and analysts expect revenue to increase by about 4.1% to $10.3 billion while earnings to decline roughly18% year-over-year to $1.50 per share.
Investors should obviously be watching if Dollar General tops these estimates, but even if it doesn’t and the stock price falls, it could be a good buying opportunity.
Investors should closely examine its outlook for the current fiscal year and keep an eye on macroeconomics. If economic indicators continue to trend lower, it might be a good idea to put this stock on your radar. It is very cheap, with a P/E ratio of 12 and a P/S of just 0.42.
In addition, Dollar General stock has a history of outperforming in down markets.
Its up 7% this year when the S&P 500 is down 2%, it was up 6% in 2022 when the S&P 500 was off 19%, and it gained 18% in 2018 when the large-cap benchmark fell 6%.
