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 General Corporation (NYSE:DG) 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 busy shopping aisle filled with discounted items in a retail store.
Dollar General Corporation (NYSE:DG)
Number of Hedge Fund Holders: 42
Dollar General Corporation (NYSE:DG) operates as a discount retailer across various regions in the United States, including the southern, southwestern, midwestern, and eastern states. It provides an extensive range of products, catering to diverse consumer needs.
Its offerings include consumables such as cleaning supplies, paper goods, packaged foods, and perishables. Additionally, the company stocks a variety of snacks, health and beauty products, pet supplies, and tobacco.
Cramer mentioned that the stock was the fourth worst-performing one on the S&P 500. He added:
“Dollar General and Dollar Tree certainly haven’t distinguished themselves as real bargains when it comes to their stocks or their merchandise.”
Dollar General’s (NYSE:DG) primary customer demographic consists largely of households with annual incomes below $35,000, accounting for approximately 60% of its overall sales. This demographic has faced challenges due to rising inflation, which has impacted spending capacity.
Consequently, during the second quarter, the company reported a modest growth in same-store sales of just 0.5%. Operating profits experienced a significant decline of around 20%, leading to a drop in per-share earnings from $2.13 in the previous year to $1.70. Moreover, net income for the first half of 2024 decreased significantly to nearly $738 million, compared to $983 million during the same period last year.
Amidst these challenges, Dollar General (NYSE:DG) adjusted its sales projections for 2024. It lowered expectations for revenue growth from an initial forecast of 6% to 6.7% to a more modest range of 4.7% to 5.3%. Additionally, the outlook for same-store sales was revised downwards, with forecasted growth now estimated between 1% and 1.6%.
Overall DG ranks 3rd on our list of Jim Cramer stocks that finished dead last. 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 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.