Retail discount variety stores continue to go from strength to strength while many of their competitors board up, succumbing to e-commerce titan Amazon.com, Inc. (AMZN). The group has rallied 38.12% so far in 2019, far outpacing the SPDR S&P Retail ETF's (XRT) disappointing -1.75% return.

Leading discount variety players have kept relevant in today's dynamic retail environment by expanding their online platforms, delivering outstanding value to cost-conscious customers, and adding more delivery services to rival Amazon's logistical might. Furthermore, many big-box retailers have refreshed their brick-and-mortar locations to enhance shoppers' in-store experience.

Investors also see the industry as tried and tested in both good times and bad, making the space attractive in the current climate of uncertainty amid global trade tensions and recession talk. "Against a somewhat volatile consumer sector backdrop, we see increased investor appetite for recession-resistant and defensive stories," Credit Suisse analyst Judah Frommer said in relation to discount retailers, per Barron's.

Those wanting to join the discount variety store revolution should consider these three stocks that sit at the industry's forefront and have proven that they can adapt to the retail world's new frontier. Below, we review each retailer in more detail and point out suitable entry points.

Costco Wholesale Corporation (COST)

Costco Wholesale Corporation (COST) offers branded and private-label products in a range of merchandise categories. The Issaquah, Washington-based company sells memberships that allow customers to shop in its warehouse stores featuring low prices on a limited product assortment. Costco reported third quarter fiscal earnings per share (EPS) of $1.89, surpassing analysts' expectations by six cents per share. Revenue came in at $34.8 billion to fall short of estimates by $125 million but still grew 7.4% from the year-ago figure. Notably, the primarily brick-and-mortar retailer posted a 22% year-over-year (YoY) increase in its e-commerce comparable sales during the quarter. Trading at $292.05 with a market capitalization of $128.44 billion and offering a 0.88% dividend yield, the stock has gained 44.28% year to date (YTD), outperforming the discount stores industry average by 12.45% as of Sept. 4, 2019.

Apart from several minor pullbacks, Costco's share price has trended steadily higher since bottoming in December 2018. The stock broke above the mid-July high on Aug. 27 after a record number of shoppers attended the company's first store opening in China despite ongoing global trade tensions. The price continued its upward momentum the following day to record an all-time high at $299.29. Those looking to buy the top-performing stock should seek an entry price near the initial breakout level between $280 and $283, where previous resistance now acts as support.

Chart depicting the share price of Costco Wholesale Corporation (COST)
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Target Corporation (TGT)

Target Corporation (TGT) operates as a general merchandise retailer in the United States, offering a variety of products across several categories, including beauty and household essentials, apparel and accessories, food and beverage, home furnishings, and hardlines. The 117-year-old Minneapolis-based retailer posted second quarter adjusted EPS of $1.82 per share on revenue of $18.4 billion to record YoY top- and bottom-line growth of 3.6% and 22%, respectively. Same-store sales for the quarter jumped by 3.4%. Target said that its in-store pickup and same-day shipping services helped deliver the better-than-expected financial results. The retailing giant's shares have a $54.24 billion market cap, issue a 2.47% dividend yield, and are trading up a whopping 64.40% on the year as of Sept. 4, 2019.

Target shares gapped 17% higher after the retailer released its blowout quarterly earnings. Since then, the stock has continued its grind higher to print an all-time high at $109.33 on Friday, Aug. 30. The relative strength index (RSI) has remained embedded in overbought territory for the past two weeks, increasing the probability of a retracement before the stock attempts higher prices. Investors should look for a pullback to the $88 level, where the price finds significant support from the 50-day simple moving average (SMA) and a horizontal line connecting a series of prices over the past 12 months.

Chart depicting the share price of Target Corporation (TGT).
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Dollar General Corporation (DG)

With a market value of $36.32 billion, Goodlettsville, Tennessee-based Dollar General Corporation (DG) operates as a discount retailer, providing various merchandise products in the southern, southwestern, Midwestern, and eastern United States. The retailer, known for its locations in smaller towns, places emphasis on value, with more than 80% of its items priced at $5 or less. Dollar General posted second quarter EPS of $1.74, ahead of Wall Street's consensus of $1.58. The company's top line increased by 8.4% on a YoY basis, driven by new outlets and strong same-store sales growth. Management also upped the company's full-year 2019 guidance to between $6.45 and $6.60 per share from between $6.30 and $6.50 per share, noting that the revised forecast includes the anticipated impact of increased tariffs on certain products imported from China. As of Sept. 4, 2019, Dollar General stock has returned 44.86% YTD, gaining over 16% in the past month alone.

The retailer's share price trended higher between late December and June before turning range bound throughout most of July and August. Quarterly earnings acted as the catalysts for a breakout above the July swing high. The price has retreated slightly in recent sessions after putting in an all-time high at $158.91. Those wanting to enter this momentum stock should place a limit order around $45, where the price finds a confluence of support from the all-time high and the 50% Fibonacci retracement level.

Chart depicting the share price of Dollar General Corporation (DG)
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