While some companies are still riding bull market tailwinds, others are struggling to adapt to shifting consumer sentiment. When share prices are down, current and prospective investors should examine the business behind those movements to determine whether the sell-off is warranted.
Ultimately, the right stocks for your portfolio will depend on numerous factors, including your risk tolerance level, investment interests, and long-term investment goals. However, if you're looking for two top-notch stocks to buy that are nearing 52-week lows and still have compelling businesses behind them, here are a couple of names to consider.
1. DexCom
DexCom(NASDAQ: DXCM) is known for its continuous glucose monitoring (CGM) devices, which enable pre-diabetics as well as Type 1 and Type 2 diabetics to monitor blood sugar levels. This can help users not only detect blood glucose spikes, but also actively work to mitigate those occurrences. The company is one of the global leaders in the CGM space, and just became the first to garner approval for an over-the-counter glucose biosensor.
This device, called the Stelo, is approved by the U.S. Food and Drug Administration for individuals 18 and older who are not on insulin. Most CGM users are still Type 1 diabetics, so there is significant room for expansion in the Type 2 and prediabetic markets.
The approval of a glucose biosensor for non-insulin users that is available over the counter without a prescription is a landmark event. This could also be instrumental to help slow the progression of diabetes among users by providing real-time data to inform better decisions.
The recent quarterly report saw DexCom deliver 15% revenue growth from the year-ago period to $1 billion, with U.S. revenue increasing 19% and international revenue 7% year over year. Net income rose to just shy of $144 million, a 24% increase from one year ago. While that top-line growth figure represented a deceleration from its 24% growth rate in the first quarter, these are undeniably solid results for a business at DexCom's level of maturity and profits are still soaring.
However, investors have sold off the stock heavily recently. Shares are down by roughly 50% over the last six months. So why has DexCom gone off a cliff? This seems to go back to numerous factors. For one, some investors might be concerned about the impact of GLP-1 drugs on the need for devices like DexCom's. However, CGMs and glucose biosensors can work hand in hand with patients taking GLP-1 drugs, and these medicines don't replace the need for reliable glucose monitoring.
Management also slightly lowered its 2024 guidance in the recent financial report from previous guidance of $4.2 billion to $4.35 billion to between $4 billion and $4.05 billion. Speedier rebate eligibility for the company's flagship G7 CGM than it originally foresaw was another element that contributed to the stock's nosedive, but management has been clear that this impact will resolve in the coming quarters.
None of these factors seem particularly alarming. While investors should watch DexCom to ensure a pattern of shifting growth doesn't occur, its market leadership, still strong core financials, and popular products (its G7 CGM is the most covered of any such device on the market) shouldn't be overlooked either.
The ability to target underexplored areas of the diabetic and prediabetic population contributes to a positive outlook for future growth. The company's current price-to-sales multiple of 7 may present an opportunity for long-term investors to buy shares on the dip.
2. Ulta Beauty
Ulta Beauty(NASDAQ: ULTA) is another company that has earned the ire of investors recently, with shares dipping about 25% from the start of this year. The company is dealing with fairly predictable -- but near-term -- headwinds from shifting consumer spending patterns.
Although consumers may continue to spend on smaller purchases during tough economic times, they are less inclined to allocate funds for nonessential items. Even as positive economic data continue to encourage investors, companies with exposure to discretionary consumer spending will take time to recover from macro-driven lags.
Ulta Beauty's management has also noted that the company has yielded market share to some of its competitors in core markets. However, that is not an unexpected shift in the highly fragmented beauty space, and it's one that the cosmetic stock seems well positioned to tackle.
Finally, the company is dealing with some tough year-over-year comparisons in recent quarterly reports, but it remains profitable with a solid cash position. Over the trailing 12 months, Ulta Beauty has brought in net income of $1.2 billion on revenue of $11.3 billion. It also generated operating cash flow of $1.4 billion in the 12-month lookback period, with free cash flow of $719 million in that same time frame. And the beauty retailer ended the most recent quarter with $414 million in cash on its balance sheet.
That creates a more favorable backdrop when examining Ulta Beauty's recent quarterly report, in which it reported net sales growth of 0.9% to $2.6 billion and comparable sales declined 1.2% year over year. Net income was down year over year, but still totaled about $253 million for the three-month period.
Ulta Beauty controls roughly 9% of the $112 billion beauty product industry and around 1% of the salon services industry, a $69 billion space. Given the value and fragmentation of these markets, there's plenty of growth opportunity from existing and new share that Ulta Beauty can explore in the next several years and beyond. Investors looking to buy a top beauty stock on the dip might be remiss to overlook this one.
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*Stock Advisor returns as of October 7, 2024
Rachel Warren has positions in DexCom. The Motley Fool has positions in and recommends Ulta Beauty. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.
