When a company underperforms, the markets sometimes have a tendency to overreact. An earnings miss or a guidance cut can at times be enough to lead to a significant sell-off, even if the underlying business remains a sound investment.
Heading into 2024, there are three struggling stocks that are in negative territory this year but have the potential to bounce back. Dollar Tree (DLTR 0.04%), Dollar General (DG -0.41%), and Pfizer (PFE 0.55%) are all trading near multiyear lows, and could have much better performances next year.
1. Dollar Tree
In recent months, Dollar Tree stock has been rallying. But the retail stock is still down 8% year to date and trading around the levels it was at two years ago. The good news for investors, however, is that the rally has the potential to continue into 2024; the stock may still have a lot more room to rise.
Dollar Tree hasn't made for a terribly exciting investment to own in 2023, as the company has been struggling with lower margins due to lost inventory. But with supply chain issues abating and some relief in freight costs anticipated over the next few years, profitability could improve.
Last quarter, which ended on Oct. 28, the company's net income totaled $212 million and was down more than 21% from the prior-year period. The positive is that same-store sales are promising, rising by 5.4% under the Dollar Tree banner and 2% at Family Dollar stores.
Another catalyst which could improve profitability for Dollar Tree is its continued rollout of higher-priced items, which could lead to a greater variety of products and better margins. This past quarter, the company says it has introduced multiple-price Plus offerings to 870 more Dollar Tree locations. As consumers look for ways to trim their budgets with a possible recession looming next year, Dollar Tree's stores could benefit from an uptick in traffic.
2. Dollar General
Another discount retailer that may be due for a bounce back in 2024 is Dollar General. The retailer has lost close to half of its value this year as it has missed estimates and cut its forecast. The situation became so concerning that the company even brought back its old CEO, Todd Vasos.
Due to challenging economic conditions, the company is scaling back expansion. It previously expected to open 1,050 new stores for fiscal 2023 (which ends in January), but now it's aiming for 990. Trimming expansion is a good move for the business as it can help improve the bottom line.
In Dollar General's most recent earnings report, for the quarter which ended on Nov. 3, net income totaled just $276 million and was down 47% year over year. Same-store sales were also down 1.3%.
A turnaround may take some time, but since the company is focusing on being more modest about growth and looking to improve its operations, this could be a good contrarian stock to hold. Although they've been rising in recent weeks, Dollar General shares are still trading at around 2019 levels.
3. Pfizer
Shares of Pfizer have plummeted 47% this year. The company is dealing with the loss of patent protection on some of its top drugs later this decade, while its revenue from preventing and treating COVID-19 (via the vaccine Comirnaty and medicine Paxlovid) is also diminishing. Overall, this doesn't paint a great picture for investors.
The stock has been in a free fall, and it's getting close to a 10-year low. The company projects that next year its revenue will be fairly similar to what it generates this year -- between $58 billion and $62 billion. While zero growth isn't impressive, it's happening while the company faces significant declines in COVID-19-related revenue. Over the first nine months of 2023, sales from Comirnaty were down 77% from the same period last year.
The healthcare company has been loading up on acquisitions to bolster its prospects, and that should pay off in the long run. Recently, it closed on its acquisition of Seagen, which will help expand its oncology business.
Pfizer is in a transition, but as the stock trading is trading at a low 9 times estimated future profits, it's a cheap buy heading into next year. This is still a strong and diverse business to invest in; with so much negativity and bearishness already factored into its current valuation, the stock has the potential to outperform in 2024.
