2022 is finally over, and many investors won't miss it. But now could be a great time to sift through the wreckage to find quality stocks trading at a discount. Let's discuss why Crocs (CROX -0.52%) and Dollar General (DG 0.30%) could be poised for success in 2023 and beyond.
Crocs
If you were around in the mid-2000s, you probably remember Crocs. Comfortable and unabashedly goofy, these foam clogs soared in popularity before quickly hitting the fashion dustbin. However, under the leadership of CEO Andrew Rees, the brand has enjoyed a revival that could create long-term value for shareholders.
Crocs regained its spotlight during the COVID-19 pandemic when stay-at-home orders encouraged footwear consumers to prioritize comfort over aesthetics. But the resurgence wasn't just about luck. Management set the stage for a comeback by heavily targeting Generation Z through celebrity endorsements and targeted ads on platforms like TikTok. The company has also diversified its revenue stream by buying the casual shoe brand HeyDude for $2.5 billion in 2022.
The efforts are paying off in a big way. Third-quarter revenue jumped 63% year over year to $985 million, helped by the stellar performance of HeyDude, which exceeded expectations with an 87% rise in revenue to $269.4 million in the period. With a price-to-earnings (P/E) ratio of just 10, Crocs stock is surprisingly cheap for a fast-growing company; its bottom-line valuation is just half the S&P 500's average P/E of 20.
Dollar General
While most stocks dropped in 2022, Dollar General bucked the trend. Shares in the deep-discount retail chain are up 5% over the past 12 months. And the stock can continue outperforming because of its safe business model.
Image source: Getty Images.
According to a Bloomberg poll, 70% of economists expect the U.S. economy to fall into a recession this year. Historically, economic downturns are bad news for most businesses because they lead to an erosion of consumer spending. Dollar General is an exception. While its low-priced products sell well in good times, they become essential when money is tight. The company is already seeing this story play out.
According to Dollar General, one of its fastest-growing customer categories is people making $75,000 to $100,000 a year looking for deals as inflation whittles away their spending power. Dollar General enjoys modest growth, with third-quarter revenue increasing $11.1% to $9.5 billion. And the stock's forward P/E of 20 is in line with the market average.
Which stock is best for you?
Crocs and Dollar General are excellent stock picks for 2023, but they serve different investment strategies. With its rapid expansion and surprisingly low valuation, Crocs seems to have more long-term growth potential. On the other hand, Dollar General is the safer pick, because its discount-focused business model makes it more likely to retain and even grow revenue in this uncertain economic environment.
