We recently compiled a list of the 7 Best Department Store and Discount Retailer Stocks to Buy. In this article, we are going to take a look at where Dollar General Corp (NYSE:DG) stands against the other department store and discount retailer stocks.

Consumer Sentiment Across the US

Consumer sentiment in the US is recovering: it rose to a six-month high in August as the positive ripples of optimism over the economic outlook spread across the country. This improved consumer confidence reading was reported by the Conference Board at the end of August, highlighting the perception that business conditions across the country are likely to improve over the coming six months. The results also suggested that the chances of an oncoming recession are declining. The consumer confidence index by the Conference Board rose to 103.3 in August from 101.9 in July, its highest level since February.

However, Americans are still anxious. Concerns about the labor market are soaring, especially after the unemployment rate in the country rose to 4.3% in July, almost a three-year high. The Federal Reserve appears to be mirroring public concerns about the labor market. In a highly anticipated speech to the Kansas City Fed’s annual economic conference, Jerome Powell, Federal Reserve Chair, said that increasing cooling in the job market would be unwelcome. He expressed optimism about inflation rates in the country, claiming that they appeared within the 2% target by the US Central Bank.

“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

The rapid increase in unemployment is mostly driven by slow hiring, rather than rising layoffs. However, Powell claimed that:

“We do not seek or welcome further cooling in labor market conditions,” he said. “We will do everything we can to support a strong labor market as we make further progress toward price stability.”

Consumer prices in the US rose moderately in July. A report released by the Labor Department at the end of August marked the third consecutive month of tame consumer price readings. Producer prices rose slightly in August to suggest a downward trend for inflation. Reports of falling inflation are running alongside business anecdotes claiming that consumers are employing bargain-hunting tactics to push back against high prices. Consumers are also reducing their purchases and are switching to lower-priced substitutes, which is a promising trend for discount retailers with competitive pricing. Moreover, with rate cuts around the corner, these stocks are poised to do well.

Our Methodology

We used the Finviz stock screener to identify stocks in the department stores and discount retailers businesses. We then shortlisted the stocks that were the most widely held by hedge funds, as of Q2 2024. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Dollar General Corp (NYSE:DG)

Number of Hedge Fund Holders: 42

Dollar General Corp (NYSE:DG) is a Tennessee-based chain of discount stores that operates more than 20,000 stores across the country and Mexico. In February, it celebrated the grand opening of its 20,000th store in Alice, Texas, and is continuing its rural expansion across the country. Dollar General (NYSE:DG) offers discounted deals and slashed prices on a wide array of offerings in its stores, including clothing, kitchenware, grocery items, pharmaceuticals, health supplies, outdoor furniture, and much more.

The stock fell after it reported its earnings for the second quarter. Its revenue grew by 4% year-over-year to $10.2 billion, but earnings per share fell by 20% to $1.70, below analyst estimates of $1.79. However, Dollar General Corp (NYSE:DG) is here to stay. The company announced that its primary base of consumers were lower-income shoppers, and factors such as rising unemployment, inflation, and interest rates had put them in a worse position as compared to six months ago. However, with inflation slowing down, the company is expected to make a recovery.

Around 60% of Dollar General’s (NYSE:DG) customers hail from a household income of less than $35,000 a year, for whom the company offers numerous deals and discounts. At the beginning of the summer, it offered 100+ back-to-school supplies below $1, with an additional 30% discount for educators. Discounts like these give the company a competitive advantage, especially when compared to its competitors who do not hold such every day low-price positions.

The company is now focusing on controlling what it can control, including customer-centric merchandising, a timely and accurate supply chain, and in-store execution. Furthermore, Dollar General (NYSE:DG) is working towards its “back-to-basics” progress, enhancing customer experience by increasing employee presence at the front end of its stores and ensuring that its associates provide an increased level of engagement to customers. It is also focusing labor hours on perpetual inventory management in an attempt to facilitate its sales growth and improve in-stock levels.

Dollar General (NYSE:DG) is currently trading at a forward P/E of 14.23 at a 21% discount to its sector. 42 hedge funds hold stakes in the stock as of Q2 2024.

Overall DG ranks 5th on our list of the best department store and discount retailer stocks to buy. While we acknowledge the potential of DG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.