Two stocks that could explode this holiday season

Historically, December has been a pretty good month for the stock market for a number of reasons. In fact, since 1945, the average December annual return for stocks has been 1.6%. This is better than any other month since then, with the exception of April, which saw an annualized return of 1.6%.

It is also a time when investors reassess and rebalance their portfolios, shedding underperforming companies and looking for new investment opportunities. Here are a few stocks to watch that could explode not only this holiday season, but also in 2024.

1. Dollar General

discount store dollar plain (NYSE:DG) has had a brutal year so far in 2023. Its stock price has fallen 46%, sales have fallen, and it has been dealing with federal fines and violations for worker safety issues, bad press, and management turnover.

This situation is unusual for a stock that has been a model of consistency since its listing in 2010. In fact, 2023 will be the first year that Dollar General has finished the year with negative returns since going public. Since 2010, it has recorded an average annual return of 13.3%.

But there appears to be reason for optimism. The board reappointed Todd Vasos as CEO in October. I say ‘reappointed’ because he served as CEO from 2015 to 2022, during which time the retailer achieved tremendous growth. Since then, Vasos has remained on the board but has gone into semi-retirement. But he is now back as CEO for the “near future,” replacing his successor, Jeff Brown.

During Vasos’ tenure as CEO, Dollar General added approximately 7,000 stores, increased annual sales revenue by more than 80%, and more than doubled its market capitalization. It has also been named to Fortune Magazine’s ‘World’s Most Admired Companies’ list in 2020 and 2022.

Dollar General stock is now as cheap as it has been for a long time, with a price-to-earnings ratio of 13x and a price-to-sales ratio of 0.76, down from 25x a year ago. For the full fiscal year, Dollar General expects same-store sales to remain in the -1% range in 2023, with net sales growth ranging from 1.5% to 2.5% year-over-year.

Dollar General is scheduled to report fiscal third-quarter results tomorrow, so investors should keep an eye out for any signs of progress. A good earnings report can provide a nice pop, but even if it doesn’t meet expectations, it can present a good buying opportunity. Dollar General has historically performed well when the economy is struggling as consumers seek lower prices. With economic growth expected to slow next year, combined with new leadership and a low valuation, Dollar General could enjoy a resurgence next year.

2. Costco wholesale

costco wholesale (NASDAQ:COST) is another retail stock that could surge this holiday season and beyond. Costco is scheduled to report its fiscal first quarter results on December 14th, and if recent trends continue, it should be a good one. Last November, Costo reported net sales of $20.1 billion, a 5% improvement over November 2022. For the 12 weeks ended November 26, sales increased 6.1% year over year to $54.4 billion.

Like Dollar General, Costco is in the midst of a leadership transition as longtime CEO Craig Jelinek retires at the end of the year. But the transition should go smoothly. Ron Vachris, who has been with the company for 40 years, most recently serving as president and CFO, will take over on January 1.

Costco stock is up 33% year to date (YTD) and has remained incredibly consistent for the year. In fact, last year was the only year to record negative annual returns since 2008. Over the past 10 years, Costco has recorded an average annual return of 17.5% and has continued to grow its profits every year. Over the past five years, the retailer’s annual revenue has grown at an annual rate of 11.4%.

Considering Costco’s strong performance in November and the past 12 weeks, it is expected to deliver solid performance next week, which is positive for its stock price. Beyond that, Costco is well-run, has a wide moat as a leader in its field, and tends to perform well in economic environments characterized by slowing growth or recessions, so there’s no reason to expect it to slow down.