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4 Top-Rated Value Stocks to Add to Your Watch list: Dollar General, Kroger, Affiliated Managers, and Hibbett Sports

Stocks like Dollar General (DG), Kroger (KR), Affiliated Managers (AMG) and Hibbett Sports (HIBB) have been performing quite well in a pandemic-disrupted market primarily because of their sustainable business practices and strong corporate management. We think these stocks should be good choices for investors seeking to invest in potential turnaround candidates that are currently trading at discounts to their peers.

Despite being hit hard by the COVID-19 pandemic, the U.S. stock markets delivered solid returns last year. 2020 ended with major indices hovering around their all-time highs. Thanks to an increased dependence on technology products, major tech stocks, which are widely viewed as quasi-growth stocks, are currently trading at lofty valuations.

However, rising market volatility and a potential market bubble have been tempering the popularity of growth stocks. As a result, investors are seeking to divert their capital to potential turnaround candidates that underperformed in the wake of the pandemic. The beginning of this trend is evident in the iShares Russell 1000 Value ETF’s (IWD) 16.3% gain over the past three months versus the iShares Russell 1000 Growth ETF’s (IWF) 8.8% returns.

Stocks such as  Dollar General Corporation (DG), The Kroger Co. (KR), Affiliated Managers Group, Inc. (AMG) and Hibbett Sports, Inc. (HIBB) have performed very well so far and are currently trading at  discounts to their peers. So, we think these stocks are well-positioned to effectively manage through the uncertainties and gain with an  economic recovery.

Dollar General Corporation (DG)

DG is a discount retailer, offering a selection of merchandise, such as consumables, seasonal, home products and apparel. In addition to its private brands, DG also sells products from other manufacturers, such as Procter & Gamble, Coca-Cola, Unilever, Nestle, Kellogg's, PepsiCo, and others.

In terms of trailing-12-month P/E, DG is currently trading at 20.93x, 14.2% lower than the industry average of 24.40x.

In November, DG announced its plans to set up a DG Fresh and Dry Combination Facility in Nebraska with an initial investment of $85 million. This dual distribution center is expected to l enable DG to expand its foothold in the Midwest region.

On November 13, DG expanded its holiday savings events to help customers celebrate and stretch their budgets during the holiday season. Through a series of sales events DG served customers by increasing contactless options with DG Pickup and self-checkout, delivering clean and inviting store environments.

DG’s net sales have increased 17.3% year-over-year to $8.20 billion in the fiscal third quarter ended October 30, 2020. Its operating profit has risen 57.3% from the year-ago value to $773.13 million, while its EPS has improved 62.2% from the same period last year to $2.32.

Analysts expect DG’s revenues to grow 15.6% year-over-year to $8.28 billion in the current quarter ending January 31, 2020. The consensus EPS estimate of $2.72 for the current quarter indicates a 3% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 30.4% over the past year.

How does DG stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

B for Industry Rank

B for Overall POWR Rating

The stock is also ranked #16 of 40 stocks in the Grocery/Big Box Retailers industry.

The Kroger Co. (KR)

KR manufactures and processes food for sale in its supermarkets. The company operates supermarkets, multi-department stores, jewelry stores and convenience stores throughout the United States.

KR’s trailing-12-month non-GAAP P/E of 10.43x is 49.8% lower than the industry average of 20.78x. In terms of trailing-12-month Price/Sales, the stock is currently trading at 0.2x, 86.5% lower than the industry average of 1.49x.

In December, KR was named to the Dow Jones Sustainability North America Index (DJSI) for the eighth consecutive year for its sustainable business practices. This recognizes KR’s incremental focus on environmental performance improvements, ESG integration, reporting and disclosure, workforce development, supply chain governance and responsible sourcing, and positive social impact and philanthropy.

On December 22, Kroger Health, the healthcare division of KR, announced its plan to provide COVID-19 vaccine nationwide across its pharmacies and clinics through partnerships with the federal government and state health departments. The size and scale of its health care operation provides KR with the unique ability to efficiently administer the vaccine and immunize a large portion of the U.S. population.

KR’s net sales have increased 6.3% year-over-year to $29.72 billion in the fiscal third quarter ended November 7, 2020. Its operating profit has risen 211.8% from the year-ago value to $792 million, while its EPS has improved 153.1% from the same period last year to $0.81.

Analysts expect KR’s revenues to grow 6.8% year-over-year to $30.86 billion in the current quarter ending January 31, 2020. The consensus EPS estimate of $0.68 for the current quarter represents a 19.3% improvement year-over-year. The company has an impressive earnings surprise history, as it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 19.4% over the past year.

KR is rated a “Buy” in our POWR Ratings system. It has a “B” for Trade Grade, Buy & Hold Grade, and Industry Rank. Among 40 stocks of the same industry, it is ranked #19.

Affiliated Managers Group, Inc. (AMG)

AMG is an asset management company with equity investments in boutique investment management firms. The company generates long‐term value by investing in leading independent active investment managers through a proven partnership approach. The company operates in three segments, which represent its principal distribution channels: Institutional, Mutual Fund and High Net Worth. In addition, AMG provides centralized assistance to its affiliates on strategy, marketing, distribution, and product development.

AMG’s trailing-12-month non-GAAP P/E of 8.06x is 37.2% lower than the industry average of 12.82x. In terms of trailing-12-month Price/Cash Flow, the stock is currently trading at 5.33x, 45.2% lower than the industry average of 9.73x.

In November, AMG had purchased a minority equity interest in Jackson Square held by Macquarie Investment Management. Jackson Square serves a diversified set of institutional clients and consultants globally. With its investment-centric culture and focus on concentrated strategies, Jackson Square has strong future  growth prospects, which are expected to benefit all its stakeholders including AMG.

AMG’s adjusted EBITDA has increased 14% year-over-year to $206.50 million in the third quarter ended September 30, 2020. Its EPS has improved 11% from the year-ago value to $1.71, while assets under management have increased 2.4% from the same period last year to $653.5 billion.

Analysts expect AMG’s revenues to grow 6.1% year-over-year to $538.5 million in the current quarter ending March 31, 2020. The consensus EPS estimate of $3.41 for the current quarter represents  a 7.9% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 30.3% over the past year.

It is no surprise that AMG is rated “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is currently ranked #13 of 68 stocks in the Asset Management industry.

Hibbett Sports, Inc. (HIBB)

HIBB is a leading athletic-inspired fashion retailer in the U.S. . Its stores offer a range of merchandise, including athletic footwear, athletic and fashion apparel, team sports equipment, and related accessories.

HIBB’s trailing-12-month non-GAAP P/E of 10.40x is 48.3% lower than the industry average of 20.12x. In terms of trailing-12-month Price/Sales, the stock is currently trading at 0.67x, 50.4% lower than the industry average of 1.35x.

HIBB net sales have increased 20.3% year-over-year to $331.38 million in the fiscal third quarter ended October 31, 2020. Its non-GAAP operating income has risen 372.9% from the year-ago value to $32.70 million, while non-GAAP EPS has improved 353.1% from the same period last year to $1.45.

Analysts expect HIBB’s revenues to grow 12% year-over-year to $350.56 million in the current quarter ending January 31, 2020. The consensus EPS estimate of $1.09 for the current quarter represents a 113.7% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 97.9% over the past year.

HIBB POWR Ratings reflect this promising outlook. It is rated a “Strong Buy” in our POWR Ratings system. It has an “A” for Trade Grade and Buy & Hold Grade and Industry Rank, and a “B” for Peer Grade. In 34-stock Athletics & Recreation industry, it is ranked #12.

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DG shares rose $0.10 (+0.05%) in after-hours trading Wednesday. Year-to-date, DG has declined -2.30%, versus a 2.68% rise in the benchmark S&P 500 index during the same period.



About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.

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