Two stocks that could pop this holiday season

December has historically been a pretty good month for stocks for a variety of reasons. In fact, since 1945, stocks have averaged a 1.6% annual return in December — better than any other month except April, which also has a 1.6% annual return since then.

It is also a time of year when investors reassess and rebalance their portfolios, casting out underperforming names and looking for new investment opportunities. Here are a couple of stocks to keep an eye on that could pop, not just this holiday season but into 2024.

1.  Dollar General

Discount retailer Dollar General (NYSE: DG) has had a brutal year so far in 2023. Its stock price is down 46%, its sales are down, and it has been dealing with federal fines and violations over worker safety issues, bad press, and executive turnover.

This situation is actually unusual for a stock that has been a model of consistency since it went public in 2010. In fact, 2023 will be the first year that Dollar General has finished the year with a negative return since it went public. Since 2010, it has posted an average annualized return of 13.3%.

However, there does seem to be some reason for optimism. The board re-appointed Todd Vasos as CEO in October. I say “re-appointed” because he was CEO from 2015 through 2022, when the retailer saw tremendous growth. Since then, Vasos has been semi-retired, although he remained on the board. However, he has now returned as chief executive for the “foreseeable future,” replacing his replacement, Jeff Brown.

During Vasos’ first tenure as CEO, Dollar General added some 7,000 stores, increased its annual sales revenue by more than 80%, and more than doubled its market capitalization. It also made Fortune Magazine’s list of the “World’s Most Admired Companies” in 2020 and 2022.

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

Dollar General is set to report its fiscal third-quarter earnings tomorrow, so investors should be tuned in for signs of progress. A good earnings report could provide a nice pop, but even if it falls short of expectations, a good buying opportunity may present itself. Dollar General has historically performed well when the economy is struggling, as consumers seek out its low prices. With muted economic growth expected next year, combined with its new leadership and low valuation, Dollar General could enjoy a resurgence next year.

2. Costco Wholesale

Costco Wholesale (NASDAQ:COST) is another retail stock that could see a surge this holiday season — and beyond. Costco is due to report its fiscal first-quarter earnings on Dec. 14, and if recent trends persisted, it should be a good one. In November, Costo reported net sales of $20.1 billion, which was 5% better than November 2022. For the 12 weeks that ended Nov. 26, sales were up 6.1% year over year to $54.4 billion.

Like Dollar General, Costco is in the midst of a leadership transition as long-time CEO Craig Jelinek is retiring at the end of the year. However, it should be a smooth transition. Ron Vachris, who has been with the company for 40 years, most recently as president and CFO, is set to take over on Jan. 1.

Costco stock is up 33% year to date (YTD), and it has also been incredibly consistent over the year. In fact, last year was the only year since 2008 that it had a negative annual return. Over the last 10 years, Costco has posted a 17.5% annualized return, and it has consistently generated increasing revenue year after year. Over the past five years, the retailer’s annual revenue has increased 11.4% per year.

Given its strength in November and over the past 12 weeks, Costco should post solid earnings next week, which could give the stock a lift. Beyond that, there is no reason to expect Costco to slow down, as it is well-run, has a wide moat as the leader in its space, and tends to perform well in economic climates marked by slower growth or recessions.