We continue to believe that General Motors is one of the most attractively priced equity considerations in the market today, on the basis of its dividend yield and price-to-earnings ratio. Though Dollar General’s first-quarter results weren’t up to par, we continue to like the discount retailer. Dollar General may be more resilient than other retailers in the face of e-commerce competition and under a scenario where the economy may head south.
By Brian Nelson, CFA
On May 31, simulated newsletter portfolio ideas General Motors (GM) and Dollar General (DG) were in the news. General Motors is included in both the simulated Best Ideas Newsletter portfolio and the simulated Dividend Growth Newsletter portfolio, while Dollar General is only included in the former.
On one hand, the market was excited about the SoftBank Vision Fund (SFTBY, SFTBF) investing $2.25 billion in GM Cruise Holdings to add to GM’s $1.1 billion to bring automated vehicle technology into mainstream. The market liked the backing by Softbank, which may relieve some concerns about General Motors’ financial position and high operating leverage in a cyclical end market, and it also speaks to optimism about the future adoption of automated vehicle technology, which continues to make headlines. We liked the news of Softbank’s backing, but we continue to like General Motors regardless. The company trades at a single-digit earnings multiple and showcases a very nice ~4% dividend yield. Shares rallied more than 10% on the trading session May 31.
On the other hand, the market didn’t like Dollar General’s first-quarter results. Net sales leapt 9% thanks to 2%+ same-store-sales expansion during the period, but the pace of comps was a bit lower than what the market was expecting. We’re not worried. The discount retailer’s cash flow from operations advanced 7.5% from the year-ago period, and the company continues to return money to shareholders in the form of share repurchases and buybacks. We think some of the disappointment with customer traffic in the quarter may have simply been weather-related, too, and management noted that it is “pleased with the start” of the current second quarter. Dollar General even reiterated its full-year guidance in the press release. We think the market has overreacted. Shares yield ~1.2% at the time of this writing, and our fair value estimate stands in the mid-$90s.
We’re not making any changes to the newsletter portfolios as a result of the news May 31.
—–
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.
Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.