Dollar Tree, Inc. (DLTR), Dollar General Corp. (DG): Why You Will Love These Dollar Stocks More in 2013

In the current economic scenario, stocks of dollar stores might be one of the most reliable options to park your money. Even under unfavorable conditions, these stores performed quite well, and as the economy improves, investors can anticipate much better returns.

This is mainly due to the fact that there are a large number of consumers who are price sensitive. As a result, there is a growing demand for valued products at attractive prices which will drive the growth of these stores.

In this article, I have screened three dollar store stocks, Dollar Tree, Inc. (NASDAQ:DLTR), Dollar General Corp. (NYSE:DG), and Family Dollar Stores, Inc. (NYSE:FDO), which together contribute $56 billion to the dollar stores industry. Among these, Dollar Tree remains my top pick as it is a clear winner on the basis of three key parameters: earnings, market share, and productivity with reference to the pricing policies. Also, Dollar Tree, Inc. (NASDAQ:DLTR) products are priced around 35% lower, as compared to its peers.

Let’s discuss these stocks in detail.

Dollar Tree – the price leader

Dollar Tree, Inc. (NASDAQ:DLTR) reported solid fourth-quarter 2012 results, with comp sales increasing 2.4% as compared to 1.6% in the previous quarter. This growth was mainly driven by the acceptance of payment cards (credit and debit cards) and the holiday shopping season.

Just by accepting MasterCard as a mode of payment, the company gained 1.4% in its average transaction size in the fourth quarter. Considering the fact that card transactions are larger than cash transactions, I expect this trend to be favorable for the company in the future too. Additionally, during the holiday season, Dollar Tree, Inc. (NASDAQ:DLTR) added 40% more items targeting cash constrained customers.

Another major reason behind its growth is its geographical expansion and better retail formats. It invested around $312 million in 2012 in expansion, and saw a rise in its square footage growth by 7.7%. Moving forward, the company is planning to invest another $320 million-$330 million in 2013 on similar lines.

These investments are mainly directed towards two areas — opening new stores and renovating the existing ones. Dollar Tree is targeting at opening about 340 new stores, and also relocating more than 70 stores in 2013 across the U.S. and Canada.