As we kick off 2024 with optimism and fresh perspectives, it’s time to look at the market and identify some prime value stocks poised for gains this year. With the economy steadily recovering, we can expect undervalued stocks to experience nice upside, as investor sentiment improves.
Many companies with strong underlying businesses have fallen out of favor with the market for one reason or another. These temporarily downtrodden stocks often represent huge opportunities, as their low prices provide a margin of safety, while their sturdy fundamentals ensure that they are unlikely to crash and burn. Plus, once the headwinds clear, these stocks tend to recover nicely.
Let’s dive into three such stocks.
Dollar General (DG)
With retail stocks taking a massive hit last year, Dollar General (NYSE:DG) was one of the hardest hit, declining steadily throughout 2023 due to margin compression. However, the tides are shifting. After bottoming out around $103 per share, DG stock has rebounded more than 35%. Notably, I don’t anticipate much in the way of further losses, given how undervalued the business is right now.
Dollar General’s earnings per share are projected to drop 30% for the fiscal year ending January 2024 before returning to growth. Analysts forecast the company’s earnings per share could double by the end of 2030. But with expectations currently depressed, I think the company’s EPS numbers could hit that milestone sooner. Revenue has been climbing, and may cross $50 billion by 2028. That’s a big increase from the company’s current $38 billion level. Yet, DG stock trades at just 0.8-times forward sales and pays a 1.7% dividend yield, too.
Dollar General boasts resilient operations even amidst economic uncertainty. Its variety of consumables and daily necessities retains a loyal, value-focused clientele base. Though short-term headwinds strained margins recently, the company’s impressive store count expansion and prudent cost management position it well for the long term. I believe the market has overreacted to the company’s margin-related issues, making this deep-value play ripe for substantial gains.
Walgreens Boots Alliance (WBA)
Like Dollar General, Walgreens Boots Alliance (NASDAQ:WBA) stock nosedived to lows not seen since 2008’s recession after guidance cuts and consecutive earnings misses. Currently, shares look poised for recovery at just 8-times forward earnings with a projected 16.3% earnings per share drop this fiscal year. But from there, mid-single-digit revenue and earnings growth should resume. Plus, its 0.16-times price-to-sales multiple signals massive undervaluation to me, warranting a higher premium. Walgreens’ 7.2% forward dividend yield seems unstable, but income isn’t why I like WBA stock.
Despite its $34 billion debt load, WBA still generates plenty of profitability, despite the higher interest rate environment. That makes me believe it can deliver record profits once rates decline. Its recent stability indicates the debt risks that sank the stock are overblown. Though a few years of margin compression can happen, WBA’s long-term health remains intact. Many rivals fared worse in this environment, and Walgreens has the tools to rebound strongly.
Verizon (VZ)
Like its telecom peer AT&T (NYSE:T), Verizon (NYSE:VZ) stock has frustrated shareholders amidst a multi-year slide. This decline has been driven by its $178 billion debt load and flat revenue for nearly a decade. Nonetheless, I contend Verizon has likely hit bargain territory. While sluggish growth is expected to persist in the near-term, anticipated 2024 rate cuts and Verizon’s cost-cutting program should ignite a profit boost to energize the company’s share price recovery.
Given its scale and industry maturity, I don’t anticipate robust top-line growth from Verizon. However, with its leading network quality and 143 million+ retail connections, subscriber losses should moderate moving forward. As long as cash flows hold up, Verizon’s best-in-class 4G/5G infrastructure and spectrum capacity cement its status as an indispensable wireless staple.
Moreover, Verizon’s forward dividend yield currently sits at 6.8% after 19 consecutive annual payout hikes. With profits soon to stabilize and gradually improve, I expect modest dividend growth to continue rewarding loyal income investors. For these reasons, I’d buy Verizon hand over fist.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
