These stocks have seen better days but investors shouldn’t count them out in the long run.
A $5,000 investment can go a long way if you’re investing for years. While the stock market’s long-run return is around 10%, if you invest in a struggling stock that has a lot of room to rise higher and potentially outperform the market, your gains could be much more impressive. For example, if you were to generate a 15% average return over 22 years, a $5,000 investment would grow to more than $100,000.
I’m not saying the stocks on this list can generate those kinds of returns. But they are trading at discounted valuations, and investing $5,000 into them can be a good move. Prudent investors will know that attractive valuations can be hard to come by at a time when the market as a whole may look a bit expensive. And if you buy stocks at discounted prices, they may have a lot of upside.
Three stocks you may want to consider if you’re a growth-oriented investor looking for deals are Dollar General (DG -5.10%), Nike (NKE -3.41%), and Merck (MRK -0.91%). Here’s why these may be compelling stocks to put into your portfolio today.
Dollar General
Shares of discount retailer Dollar General are down a mammoth 43% this year. The company has complained of a “financially constrained” core customer as a key reason for its financials looking unimpressive this year. The company’s same-store sales rose by just 0.5% in the latest quarter, which ended on Aug. 2, while net income of $374.2 million declined by 20%.
It’s little surprise that amid such poor results and a concerning outlook, Dollar General stock isn’t doing too well; it’s trading near a 52-week low of $77.96. And excluding the lows it has reached this year, you would have to go back to 2017 for the last time you could have bought the retail stock at a cheaper price.
Dollar General is in a tough spot but with more than 20,000 stores, this growth machine could scale back on its business in order to improve profitability in the long run, in case its earnings don’t improve. There’s undoubtedly some risk and uncertainty with the business today but at such a beaten-down valuation and the stock trading at less than 13 times next year’s profits (based on analyst estimates), it could make for an attractive contrarian investment right now.
Nike
Another contrarian pick to consider today is Nike. The popular footwear and apparel company is also having a tough time getting customers to buy its high-priced goods due to inflation. Nike has recently made a big change in its leadership, and the hope is that new CEO Elliott Hill can get it back to basics and focusing on growing in-store sales (as opposed to just the online business), which should help its top and bottom lines.
Nike remains a popular brand and although it isn’t doing well right now, it has the potential to still be a good buy in the long run. The company’s sales were down 10% in its most recent period (which ended on Aug. 31) but it’s struggling at a time when you might expect it too — when economic conditions aren’t great and consumers are battling higher prices.
It’s far too early to throw in the towel on Nike. Investing in the stock now, while it’s near its 52-week low of $70.75, could prove to be a good move for investors in a few years. It will require some patience, but this is a stock that may generate some great returns.
Merck
Rounding out this list of discounted stocks is drugmaker Merck, which is just a few dollars away from its 52-week low of $98.60. It hasn’t experienced a steep sell-off this year, but its 6% decline has kept this seemingly undervalued stock at a low valuation. At just 10 times its estimated future profits, Merck is a far cheaper option than the average healthcare stock, which trades at a forward price-to-earnings multiple of 21.
Sales were solid in the company’s most recent earnings numbers with Merck’s top line growing by 7% (when excluding foreign exchange) to $16.7 billion for the period ending Sept. 30. Its adjusted earnings per share of $1.57 for the quarter also beat analyst expectations of $1.50.
Investors have been hesitant to buy Merck largely due to its dependence on cancer drug Keytruda, which is facing a patent cliff later this decade, posing big question marks about Merck’s potential growth opportunities. But the company has been investing into research and development and pursuing acquisitions to bolster its growth prospects. Earlier this year, the Food and Drug Administration granted approval for Winrevair, a potential blockbuster treatment for pulmonary arterial hypertension.
Like with the other stocks on this list, you’ll need to take on some risk and be OK with uncertainty with this investment. But the payoff could be significant, given the discount Merck is trading at right now.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck and Nike. The Motley Fool has a disclosure policy.