It’s Obscene How Many Good Companies Are Hitting 52-Week Lows

Trends With Friends, a blog from the people behind StockTwits, reported that 68 stocks with a market cap of over $1 billion hit a 52-week high Wednesday. Meanwhile, despite every major index moving higher—the Nasdaq Composite hit an all-time high—47 hit 52-week lows.

If you’re unfamiliar with StockTwits, it’s a social media platform for investors. 

Trends With Friends find stocks with high relative strength but lack StockTwits followings. The idea is that once discovered by the mob, these stocks will take off. Conversely, stocks with low relative strength and high StockTwits followings will get crushed as investors exit.

In yesterday’s trading, Intercontinental Exchange (ICE)hit an all-time high, while Krispy Kreme (DNUT)hit an all-time low. Although Krispy Kreme has a reasonable number of StockTwits following it (4,547), I wouldn’t consider it one of the three best buys of the 47 that hit 52-week lows. 

Here are my three choices from yesterday. 

Brown-Forman

According to Trends With Friends, Brown-Forman (BF.B), the maker of Jack Daniel’s Tennessee Whiskey, has just 798 StockTwits Followers. I love this family-controlled business. I'm pretty sure I’m one of those 798. 

The $20 billion market cap has suffered from the post-pandemic hangover, when demand for spirits slowed, forcing distributors to hold off on orders until inventories were run down to historically normal levels. 

“We anticipate a return to growth for organic net sales and organic operating income in fiscal 2025 driven by gains in international markets and the benefit of normalizing inventory trends. This outlook is tempered by our belief that global macroeconomic and geopolitical uncertainties will continue to create a challenging operating environment,” the company stated in its Q4 2024 press release in early June. 

The good news is that it expects 2025 organic net sales growth of 3% at the midpoint of its guidance for the coming fiscal year. The bad news is that it said in March that the U.S. spirits market would return to the norm of 4.5% annual growth in 2025, so it’s projecting a slower rate of growth.  

Management is being conservative in their projections.

Brown-Forman hasn’t traded this low since August 2017, nearly seven years ago, when revenues and operating income were much lower. 

This is a generational buying opportunity.

Polaris

Polaris (PII), like most recreational vehicle manufacturers, is suffering from a high-interest-rate cold that’s put the kibosh on many large-dollar discretionary purchases. It won’t last forever. 

PII has 1,977 StockTwits Followers, which is a decent amount, but certainly not in the same league as Nvidia (NVDA)with nearly 513,000. Polaris stock is down 19% year-to-date and 38% over the past year.  

However, if you read the company’s Q1 2024 transcript, you’ll see that its lower sales had just as much to do with lousy weather as it did interest rates. 

“While we're pleased with our financial performance, we did experience the worst Snowmobile season we've seen in 13 years, driven by a lack of Snow across much of North America,” stated CEO Mike Speetzen. 

While you never want to see a CEO lean on the weather excuse, in this case, it’s absolutely a factor. Who in their right mind will fork out many thousands, possibly borrowing to do so at a higher interest rate, when you have little opportunity to use it? 

Not nearly enough will, so its North American Retail business experienced a 10% in Q1 2024. However, without snowmobiles, this segment grew 3% year-over-year. 

Since 2014, PII stock has traded around $150 or higher on a few occasions. Except for the major market correction in March 2020, its share price has remained above $70 since 2012. 

Its Altman Z-Score, which indicates a manufacturer’s level of solvency, is 2.96. Anything above 1.81 is considered safe from bankruptcy over the next 24 months. I mention this to highlight that despite slower snowmobile sales, its business remains healthy. 

Five Below

I thought about going with Yum China Holdings (YUMC)because the business is too good for its shares not to rebound. However, it’s been a while since I discussed the discount retailer, so I’ll go with it instead.

Five Below (FIVE)has 5,568 StockTwits Followers. It hit a 52-week low of $104.80 yesterday, its 28th 52-week low in the past year. Down 50% in 2024, the once unstoppable stock -- it traded above $225 in August 2021 -- has its work cut out for it. 

As I said, it’s been a while since I’ve crossed paths with Five Below. Something has gone wrong in its business model. Or has it?

The company reported Q1 2024 results in early June. While sales were up 11.8% on 61 new stores, the same-store sales fell 2.3% compared to a year ago. Its lower-income customers were shopping less at its stores during the quarter, offset slightly by higher-income shoppers trading down for value. 

“The quarter solidified that consumers are feeling the impact of multiple years of inflation across many key categories such as food, fuel and rent and are therefore far more deliberate with their discretionary dollars,” CEO Joel Anderson said in its earnings call.

I’m a little concerned about this situation because here in Canada where I live, Dollarama (DLMAF)is booming, growing Q4 2024 same-store sales by 8.7%. That’s on top of a 15.9% increase the year before. 

I do know that most U.S. dollar-store chains are experiencing slower sales. Dollarama doesn’t have nearly as much competition as south of the border. This could explain the difference in business health. 

Looking at the past 12 quarters, the gross margin has always been 35-36%. The only thing that’s varied slightly is its selling, general and administrative expenses, but even there it’s stuck between 20-22%. 

So, despite the hit its lower-income customers are taking, its business remains remarkably resilient. 

It’s a buy.

 

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On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.