Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Which Stocks are Hidden Treasures? – Big Lots, Inc. (BIG), Dollar General Corp. (DG), and Dollar Tree, Inc. (DLTR)

In one of my past assignments, I worked as an Associate Brand Manager at a Fortune 100 company.  That company attempted to differentiate itself from the competition by having a superior understanding of the customer.

In that assignment, we did a number of things such as shop-alongs (where you literally shop alongside someone, make observations, and ask probing questions to help you understand how they make purchasing decisions), research studies, videotaping, interviews, and focus groups.

From both the focus groups and interviews, a key insight that I vividly remember about the Dollar Channel (Family Dollar, Dollar General Corp. (NYSE:DG), and Dollar Tree, Inc. (NASDAQ:DLTR)) was how people thought about the shopping experience.  An overwhelming number of people described the shopping experience almost exactly the same way: “like treasure hunting.”

Big Lots, Inc.And I was also surprised that even people from the upper-middle class enjoyed shopping at Dollar Stores because “you never know what you are going to find there.”

That was somewhat surprising to me, because prior to those discussions I had unfairly assumed that the only people who shopped at those stores were people of very modest means with little disposable income, when in fact many fairly well-off people shop there, particularly when they “want to buy a small gift for someone” or “need prizes for games.”

So maybe that helps explain why many of these “recession stocks” or “trade down plays” have low betas and can perform well in any market.

Now I am going to go bargain hunting in the Dollar Channel (including Big Lots) and see if there are any hidden treasures.

Are Big Lots, Inc. (NYSE:BIG), Dollar General Corp. (NYSE:DG), Dollar Tree, Inc. (NASDAQ:DLTR), and Family Dollar Stores, Inc. (NYSE:FDO) hidden treasures in today’s market?

Big Lots

Big Lots operates broadline closeout retail stores in the United States and Canada. Similar to some of the larger retailers, it operates six merchandise categories: Consumables (food, health and beauty, plastics, paper, chemical, pet supplies), Furniture (upholstery, mattresses, ready-to-assemble, bedroom, dining room, fireplaces, furniture), Home (domestics, stationery, home decorations), Seasonal (lawn & garden, holidays, summer), Play n’ Wear (electronics, toys, jewelry, infant accessories, and apparel) and Hardlines & Other (appliances, tools, paint, home maintenance).

Big Lots, Inc. (NYSE:BIG) trades at a P/E ratio of slightly less than 13 and is up by more than 17% year-to-date.  Still, this company is trading well off its 52-week high of $47.22.  Big Lots has a net profit margin of around 4% and a forecasted 5-year earnings growth rate of 9.65%.  A 12-week target price in the $37 – $40 range suggests a healthy yearly return of around 10% – 20%.  Big Lot’s (NYSE:BIG) next reporting date is March 1.

Dollar General

Dollar General also operates as a discount retailer in the United States.  Dollar General offers national brands as well as private label brands at substantial discounts to national brands.  Similar to Wal-Mart, Dollar General offers its merchandise at everyday low prices.  Except that there is one major difference: store size.  To put that into perspective, Dollar General’s average store size is a mere 7,200 square feet, compared to 102,000 square feet for an average Wal-Mart Discount store (Supercenters average 197,000 square feet).  That means that it is very easy to change the layout and product offerings, as well as to open and close stores.

Dollar General Corp. (NYSE:DG) trades at a P/E ratio of slightly less than 17 and is up around 4% year-to-date.  Like Big Lots, Dollar General is also well off its 52-week high.  Dollar General has a net profit margin of more than 5% and a forecasted 5-year earnings growth rate of around 17%.  A 12-week target price in the $50 – $53 range suggests a yearly return of around 10% – 15%.  Dollar General’s next reporting date is March 25.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.