4 Discount Retailers Ready For An Uncertain Future

By Matthew McCall | December 19, 2011 AAA

As Americans, we are raised to love a "deal," whether it be a two-for-one coupon at the local bar or a doorbuster deal on Black Friday. The search for the ultimate deals is engrained in our brains during both good and bad times. But when times are tough the ability to find merchandise on the cheap is integral.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

With around 14 million Americans out of work during the holiday season, retailers that offer quality goods and discounted prices should do well. These four retailers should be watched as potential winners this holiday season and beyond.

Discount Retailers
The country's largest retailer, Wal-Mart (NYSE:WMT), offers nearly every item you can imagine from clothing to food to gasoline. The discount retailer has been a go-to destination for shoppers on a budget for years and that trend will likely continue. The company trades with a PEG ratio of 1.34 and pays a 2.5% dividend. This year, WMT is up almost 8%, much better than the small loss on the S&P 500. Even more important for investors that are cautious is how WMT performed in 2008; when the S&P 500 fell by around 38%, WMT was up approx 21%, showing its resilience in the face of an all-out market blood bath. (For related reading, see Cyclical Versus Non-Cyclical Stocks.)

Ross Stores (Nasdaq:ROST) offers discounted products similar to WMT, however they concentrate on clothing and home goods and are not as diverse and large as WMT. The company operates over 1,000 stores in the United States with most under the brand, Ross Dress for Less. The company has a PEG ratio of 1.53 and currently pays a small dividend of 0.90%. With a gain of around 47% in 2011, the stock has been one of the retail standouts. And similar to WMT, in 2008 ROST outperformed the overall market with a gain of about 26%. (Learn How To Outperform The Market.)

Deeper Discounts
When I think deals, the first thing that comes to mind is a dollar store. Family Dollar Stores (NYSE:FDO) has approximately 7,000 stores in the United States that sell everything from clothing to pet food at deep discounts. The company has a PEG ratio of 1.03 and pays a 1.3% dividend. The stock is up around 14% in 2011, but the big number is how well FDO did in 2008. An increase of about 45% in the stock price in 2008 made FDO one of the biggest winners of the year.

TJX Companies (NYSE:TJX) has a bevy of stores under its umbrella that exude savings for customers. The brands include TJ Maxx, Marshalls, Home Goods, Winners and HomeSense. The company has over 2,800 stores under the names mentioned. TJX trades with a PEG ratio of 1.33 and pays 1.2% dividend. A gain of about 42% in 2011 has the stock trading around an all-time high and looking strong heading into the remainder of the holiday season. In 2008 TJX fell around 26% still decreasing less than the S&P 500.

The Bottom Line
Even though the numbers are showing strong holiday sales numbers in the first couple of weeks, we must realize Americans are still looking for deals. And when the holiday season is over the consumer will turn back to living more in their means whether the economy improves or not. This is the number one reason the discount retailers are positioned to do well in any type of market environment in 2012. (For related reading, see Analyzing Retail Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

comments powered by Disqus
Related Analysis
  1. Q2 Earnings Season in Rearview Mirror - Earnings Trends
    Stock Analysis

    Q2 Earnings Season in Rearview Mirror - Earnings Trends

  2. This Food Stock Is Primed For A 30% Spike
    Investing

    This Food Stock Is Primed For A 30% Spike

  3. My 3-Part Strategy For Collecting $65,000 In Dividend Checks
    Investing

    My 3-Part Strategy For Collecting $65,000 In Dividend Checks

  4. Unconventional Drilling Still Has Room To Boom
    Stock Analysis

    Unconventional Drilling Still Has Room To Boom

  5. Finding An Alternative With Currency ETFs
    Stock Analysis

    Finding An Alternative With Currency ETFs

Trading Center