With the Dow down 200 points for the second straight day, we could be in for a long-overdue correction. If the market does correct, we should be looking to invest in safe havens like Dollar General (DG). The company is 11,000 stores strong and is growing by adding tobacco to its stores (this began in March 2013) and installing 7000 more coolers into 1600 of its existing stores. Management is also working on finding out what items sell better, so it cam promote and stock its star products faster. These initiatives combined with 6-7% growth in stores (square footage) make Dollar General a conservative stock I can count on for mid-teens growth year-in, year-out
One Year Chart
Like most stocks, the problem with DG is there’s not much upside at these levels. The 2013 bull run has taken a bit from 2014 upsides. As of 2013 Q4 DG had a P/E of 16, higher than its estimated long-term growth rate of 15% per year.
Looking at quarterly profits (bottom), growth has been good, with the exception of next quarter’s estimate of only 6% profit growth, which is a one-quarter thing as profit growth is set to average 16% the following three-quarters.
Fair Value
I feel DG is worth 18 times earnings, or $67 a share. Last quarter when this data was compiled, the stock was at $61 and had a P/E of 16 times 2014 earnings estimates. Now with the market down, the stock is $57. That’s upside is currently 18% to 2014’s Fair Value.
Sharek’s Take
Dollar General is a dependable stock that I would like to pick up if we go into a full-blown market correction. The negatives about this stock are it’s only a 15% grower (I like 20% or more) and the upside to Fair Value is only 18%. With the market poised to go into a correction, we could see better prices coming and I should be building cash here not spending it. DG is on the radar, and is a safe selection with good appreciation potential if you buy in around $50 a share.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
