An Odd Worry in Low-End Retail Stores: Wal-Mart Stores, Inc. (WMT) and More

Dollar Tree, Inc. (NASDAQ:DLTR)

Seriously, in college there was a store at the local mall that was simply called ‘Only A Dollar!’ What is it with the word ‘Dollar’ and these stores? Are they called ‘Peso’ stores in Mexico? Email me and let me know if they are. Dollar Tree shows the same ‘Oh my God, stop the ride’ trend that its two ‘Dollar’ brethren do: a high in the summer, $56.745 in June, then a long slide to lower numbers. Right around then the shares split 2:1, so good for it, but it hasn’t supported the price point. Shares are down 27.5% since then. Oof. Not a happy store. P/E is just a hair above 15, and that’s about where it should be. I think growth is going to be slow for Dollar Tree. Again, no dividend. Avoid.

Costco Wholesale Corporation (NASDAQ:COST)

I had to give you at least one happy event. Costco is an interesting company to watch. It presents like a discount shopping experience but it pushes its exclusivity, and its customers will drive a while to shop there. Unlike rival Wal-Mart, sales in January were pretty good for Costco. Costco is also one of those firms that issues special dividends towards the end of last year. While I don’t have any special knowledge, that sort of thing is usually done to avoid expected higher taxation in the new year. Still, its regular dividend sits at a yield of 1.08% so it’s not much to get excited about. The stock could heat you up, though. Since May it’s up 19.1%. Compare that with the other companies further up this column and you’ll see why I think Costco has a real chance to come out of this a winner. Who knew having a membership card would turn out so well?

Retail is a tricky game. There’s a lot of competition and little room for error. I’m not ready to say that the first four firms I mentioned up there have made any errors. Far from it. But it may be a matter of people shifting away from them as they become either more or less confident. If consumer confidence is truly stronger, the better off may find themselves shopping a little more upscale. That’s going to send some contrary numbers to the big discounters. Don’t be caught by it.

Good luck!

Follow Nate on Twitter: @natewooley

More Columns by Nate Wooley:

• US Airways, American to Merge: So What?
• Break Up the Banks? Not Likely to Hurt Your Portfolio
• Amazon, Streaming Video and the Future

The article An Odd Worry in Low-End Retail Stores originally appeared on Fool.com and is written by Nate Wooley.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.