A Dollar Tree, Inc. (DLTR) and Dollar General Corp. (DG) Goes A Long Way, Generally Speaking

Over the last 6 months, Dollar General is down about 12%, Dollar Tree is down a whopping 26%, and Family Dollar is down about 16%. During this same time frame the S&P 500 is up a little over 7.5%. These companies are underperforming because of reports that 2013 would not be as big of a year as analysts had originally estimated. Dollar General is trading at just 16.7 times current earnings and 14 times forward earnings. Dollar Tree is trading at 16.25 times current earnings and 14.3 times forward earnings. Finally, Family Dollar is trading at just 16 times earnings and 12.8 times forward earnings. All of these multiples are very low when you consider the size of the discount store space. Both Dollar General and Dollar Tree currently do not pay out dividends, while Family Dollar pays out a respectable 1.50%. I believe the other two could initiate dividends in the next year or two, while Family Dollar continues to grow their yield.

Dollar General, Dollar Tree, and Family Dollar are all very cheap at their current levels. Any of these have the potential to be top performers for 2013, especially since they have been beaten down over the last few months. Dollar General is my favorite stock in this sector, followed by Dollar Tree in second and Family Dollar coming in at third. I am initiating an outperform calls on CAPS for all three. These stocks are BUYS.

The article A Dollar Goes A Long Way, Generally Speaking originally appeared on Fool.com and is written by Joseph Solitro.

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