3 Stocks for Your Watchlist (Episode 14)

Yes, I am Kate. And once again, thank you for having me on, uh, the first one. I think I want to talk to investors about today's dollar general. They just reported this week. And one of the narratives about the stock heading into the earnings report was that inflation was starting to impact the dollar stores just as it had been affecting well, pretty much any other retailer. And so there was a concern that that might be something that was gonna come to bear on the company's earnings. And one of the things that I wrote about this week was I thought that one of the narratives that was getting overlooked was that dollar general, their business plan is to keep the footprint of their stores very local to where their target customer is. And the target customer for dollar general is generally families, households that have incomes of $50,000 or less. And I heard something this week that are, I, that really resonated with me was if you are a individual or a family with an income over of over a hundred thousand dollars, inflation is noticeable, but it's something that you kind of manage through.

But if you are a household with $50,000, inflation is hurting you right now. And of course, one of the things that we always hear about the inflation numbers is, well, if you exclude gas and groceries, but where it's hurting those families that are making the $50,000 or less, the most is in gas and groceries,

right? So that was where I was kind of taking this with dollar general was you've got stores that are located close to where these individuals or families live. So if they're gonna go shopping, they might not be able to change what happens at the pump. But if you keep your store local to them, then it gives them a reason to shop at your store. Instead of driving out further to some place that might be a more destination store to take care of the shopping,

Right. I live in a small town and I know we've probably got $3 stores within probably five miles of where I live. Yeah. And so if you need to run out and get something, you can, you can do that. I've got one that's like, right on the way to my daughter's school, I can just, if I need to get something to run, get it. Mm-hmm , you know, don't even think about it. You just do that. So I think that that was a narrative. And then I looked, um, and the stock is jumping, uh, since the earnings report came out, the earnings report came out, I believe yesterday.

It jumped in the after hours. It looked like on Wednesday heading into the earnings report, but it's still been going up it's

Okay. Which

Well, I, I, I agree. You're not, you're not seeing in the earnings numbers. And that was one of the, that was one of the knocks on the stock heading into the earnings is the, that at least the, the rate of growth in earnings is slowing cuz the way I'm looking at it, well, they, they hit estimate. They didn't exceed estimate this time around mm-hmm . And that goes to the, I guess you'd call it the, the supply chain issues that I put in air quotes and the inflation that's hitting them. And that was, that's been a large narrative that I wrote about this week that that's now being passed along $2 stores. So dollar stores in the initial part of the pandemic, they were pretty much immune from that. But now they're feeling it at a greater percentage than perhaps the larger grocery chains. So there is that little bit of pass through effect to customers and it's affecting their margins and that's obviously hitting the bottom line. So, um, that was a negative to the stock. But I think that what's being overlooked is the fact that I think their revenue is going to stay fairly strong now whether they can translate that to the bottom line that remains to be seen. But I, I do generally think that they will still generate strong revenue from what I'm looking at here. Yeah. I mean, they're, they're looking at fiscal 2022. They're gonna come in. Well, they're predicting 20, 22 to 2023. They're predicting earnings to go up. So that's good.

That's well, you know, and I think, again, we we're in a, we're in a market right now where we don't know what exactly is gonna be defined as a blockbuster here in the next couple of years.

I think. Right. And I think it's a story that isn't being that it, that is currently being overlooked. And, and obviously like a lot of these stories, it's gonna maybe be a quarter or two quarters before we see if that actually plays out, but inflation's not going to be going significantly down anytime soon.

And we're in the heart of the summer driving or getting to the heart of the summer driving season. So gas prices are going to be elevated regardless of where the price accrued goes. So this is a narrative that we'll see, but I think that it can play out for dollar general. And I, you know, cautiously optimistic when I look at the stock right now and, uh, it's got some upside to, in terms of where it is in terms of the analyst's estimate as well.

This to me was a stock. I I've been kind of looking at this stock for, I'd say probably for the last two or three years. And I think when the pandemic hit its growth kind of got interrupted because if I look at the chart, the five year chart, it was moving really slow and steady, uh, you know, end of 2000 or beginning of 2017. And then into 2020 and 20, it, it had some nice growth and then boom, the pandemic hit and it just, the stock tanked like a lot of things did

Yeah. And when the company reported earnings, um, they remarked that surgical procedures using their DaVinci. That's their core robotic surgical system went up by 28% last year. And so that means that right now, currently one out of every six surgeries that are performed today, features some sort of robotic assistance.

It has. And one thing that I was noting before you and I were talking, I, I mentioned about the five year growth prior to the pandemic. So the total return, there was over 230%.

And despite the drop at the beginning of the pandemic and then a second drop at the start of this year, which I think I'm looking at the chart. Yeah. It happened right at the beginning of the year. Right. It, it dropped off mm-hmm the stock is still up 41% from, from the onset of the pandemic.

Yeah. And so, and then it, you know, from what I'm looking at here, the analysts are projecting that, uh, it's likely to reclaim that high, where it was at, uh, prior to, you know, at the end of last year. So it's gonna at least make a run at that. So that's still, that's, that's a nice 15, 16% upside from where it's at now. I think that's something that investors can be looking at because this is a stock that's gonna play very well with the narrative that we are an aging nation mm-hmm and the robotic surgeries are used. I'm not gonna say exclusively, but one of their primary uses is in some of those surgeries that you would have as you're getting older. So I think the company's got certainly there's a runway for growth there mm-hmm mm-hmm and like I said, I think it's just a stock that from a technical standpoint, I don't know. It it's, it's not oversold, it's not undersold. It's kind of right there, but

Right. And you and I were talking, I think we talked about this the last time I was on about another stock. This is a stock that if you look at the, some of the fundamental metrics, the forward price earnings, the peg ratio and such, it looks like it might be overvalued. But when you look at what they're projecting for growth in the future, that may not be the same story. You know, the it's one of those things that, yeah, you can handle a little bit of over being a little bit overvalued if you're gonna get the growth to come with it in the revenue and the earnings. And that certainly seems to be what they're projecting for this stock.

I, I agree. I, I totally agree with that. Yeah.

I do again, I think I don't use it like it doesn't inform my decision a hundred percent of the time, but generally speaking, I like to see where the analysts are projecting, but I, I think that also leads very well into the next stock that we're gonna talk about. But one of the things that I do believe is that analysts can kind of at least give you a sense of where the, you know, where the sentiment for the institutional investors gonna go. Mm-hmm . So that's why I like to look at, at where the analysts are saying, and for intuitive surgical, many of the price targets are well above the current stock price. And there's even quite a few of them that are above the consensus target too. So this just looks like one that it's not doing much right now, but I think it's one that investors are not gonna wanna stay away from.

I did. And I have to give credit for this one to, to Thomas Hughes who wrote about this for MarketBeat this week, and I'd encourage people to read his article and that's Shopify and the case that Thomas was making for it was obviously people could look at the price of Shopify it's O it's trading for what today's $677 a share. And, uh, certainly that could be, that could scare off some investors, especially when the stock has been receiving some lower price targets from analysts. So that's the dreaded downgrade, right? It's, they're lowering the price targets, but I think Thomas made a really good case of the fact that this, this can be a case where they're not suggesting that the stock is not a buy it just in their opinion. It might not be as strong of a buy as it was before. Because if you looked as I look at some of their price targets, the price targets are still well above where the stock is currently trading, but they might not be as lofty as, as they had been in the past.

For example, national bank financial lowered the price target from $2,000 to $1,500 a share, well, $1,500 a share is still double where the stock is right now. Mm-hmm . So I, I think this is a great example of if you just pay attention to the idea that price targets are getting lowered for the stock, it might steer you to think that analysts are sour on it, but I don't think that's the case at all here. I think this still looks like a very strong buy. However, it might not have as much upside, relatively speaking as some investors thought it did. And this, again, we're talking about a growth stock, so I'm not really that concerned about what might be being said about valuation at the current moment.

To me, I think some of that's natural, we had such a run up yeah. In 2020 that the, the company's running into that dreaded. Um, the easy comparisons are over, right? So now they're facing the tougher comparisons to what they did in 2020. And I think to me, that seems to be more of the case. One thing that I was very encouraged about is that when I was looking at this before, when you and I talked about me coming on the other day is in their last earnings report, they really did still continue to report strong earnings. And they did at least temporarily they've turned around the revenue story a little bit. They beat revenue. It wasn't a great beat, but it was better than the miss from the prior quarter. So,

Yeah. And I, and I, you know, I think that's, that is being, I think everything you, you mentioned is being reflected in what the analysts are saying. I think there's, they're looking at the stock and they're saying we see the stock as still being a growth stock, but maybe it's not going to be as extreme growth as we thought it was going to be. But the stock is still, the stock may still be a little bit oversold at this time.

Right. And as I look at the chart, Kate, I'm seeing, we we've now had a couple of different times where it's looking like it's trying to find a bottom mm-hmm it hit it. And then it went up and then it hit it again. But it, it that's looking like, uh, gosh, it's looking, I'm trying to figure out what that level is on my chart here, my

Five, 10 or something, it looks like it's trying to find support around there. And it's bounced the first time. It didn't bounce that strongly off at this time. It's gotten a little bit of a stronger bounce. Yep. So remains to be seen. But if investors can at least look at it and say that there's a floor that's been established. Okay. Mm-hmm ,

That would be my advice, especially with, with a stock that's been running that hot coming into the end of last year. You know, at the same time, what I would say is if you can get confirmation that the stock has actually hit a bottom and we've got a base of support then, okay, maybe you want to jump back in right now for me, it's a hold and it's something I put on a watch list, but I think it's something that you can look at to say, if you are gonna wanna buy it, I think there's gonna be enough runway there where you're not gonna be missing something. If you don't jump in today, I think there's gonna be enough of a runway where you can still catch it on the way up.

Way. You're I

Yeah.

Yes, I agree.

They can find me on Twitter. That's at CTM copywriter. I'm also on LinkedIn and you can always find the articles that I write on MarketBeat,

Thank you so much, Kate.