My Two Favorite Discount Retail Stocks

My Two Favorite Discount Retail StocksConsumers always shop for bargains and lower prices regardless of the economy. In fact, after going through the recession, consumers are probably stuck in the mind-frame of looking for the best deals when shopping. I know I prefer to buy goods on discounts and rarely for the original ticket price.

If you have been following my column, you know how I favor discount stocks in the retail sector.

Wal-Mart Stores, Inc. (NYSE/WMT) remains the “Best of Breed” in the discount retail sector, but the company is currently facing some growth issues, as are many other stocks in the retail sector. (Read “How Red Flags in the Retail Sector Are Threatening U.S. GDP Growth.”)

What I continue to like in the retail sector are the dollar stores. While these retailers are now selling goods at a price above a dollar, what I like is the move by some companies to broaden their product offerings to include foods, such as perishables. Look at what Wal-Mart has been doing with its move into nearly everything you can imagine, taking advantage of its massive consumer shopping base.

One of my favorite dollar store stocks is Dollar General Corporation (NYSE/DG). This company has a market cap of $18.0 billion, so it’s not small; however, it is tiny in comparison to the $239-billion market cap of Wal-Mart or the $49.0-billion market cap of Costco Wholesale Corporation (NASDAQ/COST).

I initially spotted Dollar General in 2011 when the stock was trading in the $20.00 range. Since then, and with the propensity to look for value, the stock has had an excellent run, as reflected on the price chart below. Note the nice upward trendline since 2010.

Dollar General Corporation Chart

Chart courtesy of www.StockCharts.com

Dollar General has been firing on all cylinders, beating the Thomson Financial consensus earnings-per-share (EPS) estimate in four of the last five quarters.

The company reported a record fiscal second quarter on Wednesday, with a 5.1% rise in the key same-store sales metric. The adjusted earnings came in at $0.77 per diluted share, which beat the consensus estimate of $0.74 per diluted share.

Dollar General also beat on the sales end, with $4.39 billion in sales for the quarter, surpassing the consensus estimate of $4.36 billion.

Even with the steady price appreciation, there’s still some room for Dollar General to grow, especially if you have a longer-term view.

In the mid-cap retail sector space, I continue to like PriceSmart, Inc. (NASDAQ/PSMT) in spite of its meteoric rise on the chart. The discount retailer with a focus on the Caribbean has been a star for me since I first started coverage on the retail sector stock in July 2009, when the price was at a mere $14.71.

PriceSmart Inc Chart

Chart courtesy of www.StockCharts.com

So while the economic recovery continues, my view is that the discounters in the retail sector will continue to excel.