September wasn't a very good time for the stock market in general, as the S&P 500 lost almost 5% for the month. After a rip-snorting 20% run-up from January to August, stocks took a breather as autumn settled in.
Inflation, supply chain disruptions, and unease about the economy seemed to unsettle investors who took some of the profits they made through the year off the table.
But time in the market is more important than timing the market, meaning you should always be adding money regardless of market conditions. You never know when a bear market will suddenly turn into a bull.
The three growth stocks below had a horrible September, actually managing to perform worse than the broader market index. However, since their businesses aren't broken, this looks like a great time to buy their discounted shares.
Image source: Getty Images.
Altria (September returns: down 9.4%)
Tobacco stock Altria (MO 0.70%) tumbled almost 10% in September because it suffered a pair of bad news events: The Food & Drug Administration didn't approve the Juul electronic cigarette for sale (it didn't deny it either) and the U.S. International Trade Commission ruled Philip Morris International's (PM +0.19%) IQOS heated tobacco device violated the patents of rival British American Tobacco (BTI 1.23%). Therefore, the offending products can't be imported to America right now.
Because traditional cigarettes are in a secular decline and reduced-risk vapor products like Juul and IQOS are the future of smoking, at least for the near term, these two developments undermined Altria's growth trajectory.
The two events are certainly troubling, but they're not a death sentence for the tobacco giant. Traditional cigarette sales still comprise the vast bulk of Altria's revenue, and because of the addictive nature of nicotine, Altria's able to regularly raise prices several times a year and almost all of its customers will keep coming back for more. It has many years of profitable growth ahead of it still.
Moreover, the FDA could still approve the Juul e-cig for sales. While concerns over teen vaping have clouded the discussion surrounding Juul, even now it remains the most popular e-cig on the market and still owns more than half the market. And Philip Morris is preparing to appeal the ITC's ruling, so that's not a done deal either.
With a dividend that's currently yielding 7.8% annually and a stock that trades under 10 times next year's earnings, Altria is a bargain at these prices.
Image source: Getty Images.
Kroger (September returns: down 12.2%)
The largest pure-play supermarket chain, Kroger (KR +3.72%), had a disappointing September despite releasing its second-quarter earnings report during the month that beat analyst expectations and raising its full-year guidance.
What spooked the market was Kroger's gross profit margin slipping 140 basis points because of inflation's impact on prices, merchandise, and labor, coupled with the constraints imposed by supply chain disruptions.
The lingering impact of the pandemic, plus the flare-up of new COVID-19 cases due to variants, is causing consumers to stock up again on certain products. Costco Wholesale and Walmart's Sam's Club, for example, are again beginning to limit customer purchases of toilet paper and some other high-value goods. We might not get to the sort of panic buying that marked the start of the pandemic, but increased customer purchase volume is a near-term tailwind for the supermarket chain.
Longer-term, Kroger's growth trajectory remains unchallenged, and while profits could get pinched due to these temporary logjams hindering the free flow of goods, they will sort themselves out over time.
Kroger also trades at a discounted price to projected earnings and goes for a fraction of its sales. Although the stock is up 25% year to date, the big pullback in its shares in September suggests it's time to stock up.
Image source: Target.
Target (September returns: down 7.4%)
Like Kroger, Target (TGT +0.32%) is a retailer feeling the effects of the bottlenecks at shipping ports on the West Coast and around the globe, but business is still booming. Comparable sales soared 9% last quarter on top of a 25% gain a year ago, and it was all driven by customer traffic. Online sales were up 10% on top of a year-ago base that itself had nearly tripled in 12 months.
Analysts see Target growing annual sales 26% over the next five years to over $116 billion while profits are expected to soar 76% in that time.
Target is also addressing the worldwide shipping issue by chartering its own cargo ship to ensure it can get consumers the merchandise they're looking for, joining other retailers like Walmart and Home Depot in taking a proactive approach to the crisis. It's also ensuring it gets its share of the holiday spending that is predicted to be quite elevated this year by launching Christmas sales this month.
With Target having just become a Dividend King by raising its payout for the 50th consecutive year, the pullback in its shares seems like an opportune time to stake a claim in this discounted growth stock.
