- Being only long or short-biased in the market can be dangerous, so today, investors have two stocks to keep and one to get rid of.
- As inflation threatens to stay higher than usual, some stocks benefit from the macro implications while others suffer.
- Institutions, insiders, and Wall Street analysts agree on the path these three stocks could take.
Investors tend to watch and emulate some of the best on Wall Street, but there’s one issue with this view: Most of the sought-after investors tend to be net buyers of the market. Other entities in the money management industry are worth watching for their superior strategies and ability to beat the market.
These entities are hedge funds, and without going into the specifics of their strategies and philosophies, all investors need to know is that they play both the long and the short side of the stock market. Investors can try to emulate these views and strategies by shorting as well as buying, or they can be flexible in being long a few names and have a short bias in others without actually shorting the stock.
Today, there are two stocks that are worth being bullish on, while one gives investors enough evidence to stay bearish on if not outright putting on a short position. These long targets are found in shares of Occidental Petroleum (NYSE:OXY) and Microsoft (NASDAQ:MSFT) as part of the energy sector’s new cycle and the secular growth in technology names. Then, the stock to avoid, if not short altogether, is the struggling Dollar General (NYSE:DG).
Sell Dollar General Before It's Too Late: Why Its Business Model Could Lead to More Sell-Offs
Stanley Druckenmiller has recently gone short on U.S. bonds. His view suggests there will be higher inflation for longer. This view stems from the fact that the prices of everyday items have risen significantly since COVID-19, and the probability of them contracting is nowhere to be expected.
If Druckenmiller is right, and inflation turns out to be stickier than expected, then business models like Dollar General’s could suffer further losses in the coming quarters. Offering value at the scale this company does has no way of remaining competitive during high inflationary environments, as margins would contract so much that constant losses would be brought to the stock.
Some on Wall Street have already started to sound the alarm bells regarding Dollar General stock, particularly analysts at Citigroup as of September 2024. They recently downgraded Dollar General stock to a “Sell” rating, this time also dropping the price target to only $73 a share to call for a net downside of as much as 10% from today’s price.
More than that, Druckenmiller’s inflation warning seems to have drawn some short sellers into the stock recently, as the company’s short interest grew by 3.7% over the past month alone to show more bearish interest. These weren’t the only bearish players in the market; however, insiders were losing faith in their own stock.
As of September 2024, two executive vice presidents in Dollar General sold as much as $400,000 worth of stock jointly, which is never a good sign. Whether there is a new management plan to turn the business around or not, it seems the risk is not worth taking for Dollar General. If anything, the opportunity lies on the short side of the market.
Why a Buffett Bet on Occidental Is a Solid Investment Strategy for Investors
Copying Buffett’s investments is nothing to be embarrassed about. In fact, investors can learn a great deal from reverse engineering his stock picks. Today, he seems to find all the opportunities within the energy sector, particularly in big oil like Occidental Petroleum.
Knowing that the recent interest rate cuts from the Federal Reserve (the Fed) will likely push business activity higher, Buffet is readying his capital to be exposed to the oil demand resulting from this trend. Here’s where investors get an even better deal, though.
Buffett bought Occidental last quarter, and the stock has sold off significantly since then as oil is taking longer than expected to recover. Now that the stock trades at only 72% of its 52-week high, the foundation for reasonable upside is set for investors to consider this name.
In addition to that wide gap to the upside, Wall Street analysts like the stock. Leading the way with price targets, analysts at Mizuho and Susquehanna think Occidental stock should trade at a respective $72 and $78 a share, calling for up to 44% upside from today’s stock price.
AI and Quantum Computing: Long-Term Trends Set to Push Microsoft Stock
Artificial intelligence is one of the trends that is here to stay, and investors should not ignore it in the coming years, particularly the companies that enable its progress and wide adoption rates. Quantum computing is another, and both are combined at Microsoft to create long-term tailwinds for the stock to go higher.
Some may argue that Microsoft’s valuation is a bit rich today, but when investors compare today’s price to tomorrow’s expected earnings per share (EPS). Wall Street analysts now forecast up to $3.48 in EPS for the next 12 months, a jump of 18% from today’s $2.95.
Double-digit growth is hard to come by when considering companies as big as Microsoft, and this superior growth rate commands a premium valuation. Knowing this is the case today for Microsoft, analysts at Truist Financial decided to boost their price targets on the stock to $600 a share, calling for as much as 42.8% upside.
Given that high valuations are always welcome with high EPS growth, even short sellers gave up the fight in shorting this ‘expensive’ stock, as judged by Microsoft stock’s 11.8% decline in its short interest over the past month.