Dollar Tree stock falls after Goldman Sachs downgrade

Yahoo Finance's Julie Hyman, Brian Sozzi, and Brian Cheung break down the Omicron variant's negative effect on markets and travel sectors and Dollar Tree's downturn after Goldman Sachs downgraded their stock.

Video Transcript


JULIE HYMAN: This is "Yahoo Finance Live." We are less than two minutes until the opening bell here on this Tuesday morning. And we've got Dow futures indicating a lower open, as we've been discussing, this reflecting the sort of uncertainty that's out there right now with regards to the Omicron variant and the effect that it is going to have. So much about it is still unknown.

But as we've been talking about, investors have, at times, this year been burned by ignoring the unknown, I guess you could say. And so they are reacting to it more so this morning than they have been. So we've been sort of looking around at what's been going on in the markets here.

And I want to take you inside the YFi Interactive, the Yahoo Finance interactive here. I've been watching the 10-year yield in particular, guys. And right now, it is off nine basis points this morning-- 1.44%. Let's put that in a little bit more perspective and look at this two-year-- two-month chart, excuse me. Actually, let's take it to a three-month chart. So we're back to the level where we were sort of early October.

This even as we have broadly been seeing a lot of strategists bring their forecasts forward for how many times for when and how many times the Fed is going to raise rates next year. Now, perhaps, they're putting a pause on that or rejiggering those numbers, given the Omicron variant. And that also hinted at by Jay Powell himself, who made some commentary yesterday afternoon that we could potentially see-- sorry, I'm having a little bit of technical difficulty here-- that could potentially have an effect on economic growth.

And there you've got the opening bell on this Tuesday morning, with that lower open that we have been talking about, guys. In terms of movers that we have been watching here, as you pointed out earlier, Brian Sozzi, we're kind of keeping an eye on those with growth stock that we have seen really get hit. But it also-- what struck me from Friday and the big sell-off there is with things like energy and financials that were getting hit the hardest.

BRIAN SOZZI: Yeah. I think you're-- there's a few on the street that eventually we will see a rotation into some of these large cap tech names, Julie. We have not seen that just yet. But that is being viewed as the safe haven trade. So when you do see those names start to perk up, perhaps we get a short-term-- just a short-term halt in some of the selling that we're seeing here in the broader market.

But again, we're seeing pressure across the board. Travel stocks, we're showing on screen right now. Walmart, Target-- retailers are under pressure here, too, as well. I mean, as we mentioned this top, it's a risk-off environment. Even strong companies with strong balance sheets and dividends, they're getting hit in this environment too, as well.

BRIAN CHEUNG: Yeah. And I'm taking a look at financials right now. Obviously, with the sell-off, you do kind of wonder whether or not this is affecting the big bank stocks as well. And it is indeed the case. You're seeing Wells Fargo down over 2%. Bank of America down over 1%. If you just take a look at the broad XLF, that's down by over 1% as well. Again, you don't want to glean too much off of that.

But when you do see a market move of about 8/10 of a percent on the Dow, getting a little bit of a more accelerated kind of downshift for the bank stocks, does illustrate the concern with the 10-year year falling to, what, 143 handle, I think it is now. That's a big change from what we saw at the end of last week, when I think it was at a what 155 handle. Actually, earlier in the week, it was as high as a 165 handle.

So you know, when it comes to these types of changes here, you do wonder about whether or not that curve flattening-- you know, we kind of joke about flattening the COVID curve, but of course, maybe it's actually the yield curve that might be flattening with this Omicron variant coming out. But this is going to be a big trend for the stocks that have had a banner year in 2021-- but might have a little bit of a skid into the new year, especially with the yield curve possibly flattening.

JULIE HYMAN: Yeah, definitely. And again-- just to remind our viewers-- at 10:00 AM today, Jay Powell, as well as Treasury Secretary Janet Yellen, are going to be appearing before the Senate Banking Committee. Now, their stated purpose-- the original purpose of them being there-- was sort of this periodic testimony on the CARES Act-- how that money has been deployed, the progress of it, et cetera. But obviously, it's getting renewed attention because of this Omicron variant and the commentary that Jay Powell made yesterday.

Moving on to some other movers not related to this central story that we are watching here. Dollar Tree shares are trading lower this morning. Goldman Sachs downgrading the stock to a neutral from a buy. The shares are off by 3%. And it's interesting the timing, Brian Sozzi, given that recently Dollar Tree became-- as people were joking on Twitter-- "$1.25 Tree." In other words, they don't just charge $1 for a lot of their stuff now.

BRIAN SOZZI: Yeah, "Inflationary Tree," Julie. Yeah, just you name it. The Dollar Tree, that moniker is really starting to not be the case any longer. By the end of the first quarter next year, Dollar Tree is going to have most of its products in its store priced at $1.25 and above because it's under fire-- continues to be under fire for its absolutely terrible stock price. And I know the stock is up about 30%. And I think that's why my buddy Kate McShane over Goldman downgraded the shares over here, very valuation based.

But the stock is up 61% over the past five years. Dollar General up 200% here. And I think this move to a $1.25 price point is supposed to unlock untapped sales and profits, and it will. But again, you look at Dollar Tree stock here, trading at 23 times forward earnings, about 16 times trailing enterprise value to EBITDA. I mean, it looks a little overvalued here. Not shocked to see this downgrade.

BRIAN CHEUNG: Yeah. And I mean, for what it's worth, it's had a banner month when you consider that, just at the end of October, the stock for Dollar Tree was about, what, $100 and now it's at $1.50 I think. So you know, this is just Goldman Sachs saying, hey, we've got to pump the brakes here, especially with this big change with the pricing model that they have here. But look, I think this speaks to the broader trend here that, when people talk about inflation, people are looking at higher wage growth, they're looking at these port-related shutdowns, which have increased shipping costs for companies across the board.

It's not as binary as, well, just go ahead and raise prices then, because you have Wall Street already pushing back on the $1.25 price point for their new model, which they hope to phase nationwide by the end of the first quarter of next year. Now Goldman Sachs is saying that's going to impact traffic. Again, there is kind of a balance between the volume of your sales when you do have price increases. So there is that kind of natural economic counterpoint to just simply raising prices. And I think this is going to be a story that's been playing out already for months in other corporate boardrooms and likely will be, especially with the Omicron variant likely to continue a lot of these supply chain issues.

BRIAN SOZZI: Brian, you try that $1 steak at Dollar Tree yet? I know you're a protein guy.

BRIAN CHEUNG: You know, I went to the Dollar Tree over the weekend. I was surprised to see all those dollar signs still up there. I wanted to take one down and maybe hang it up in my room as like a little souvenir or something. No steak, though.

BRIAN SOZZI: Well, if you find a steak, it's pretty good. Give it a try. It is good.

JULIE HYMAN: I just want to mention-- I mean, Wall Street may be pushing back, but it doesn't seem like consumers are yet. We talked to that food analyst recently who said he's looking for signs-- people trading down, people trading proteins. For example, maybe they're not buying steak, but they're buying chicken. But he said that stuff is not happening yet, so we'll have to keep an eye on those types of indicators. All right. We're going to take a break. When we come back, we're going to be checking in with Jared Blikre on the floor of the New York Stock Exchange. Stay tuned.

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