Think about this relationship that happens during a recession:

Job Loss > Lower Spending > Save Money > Shop at Discount Stores

This is one of the most natural chain reactions that Wall Street counts on every recession which is why now is such a great time to consider this group of 4 discount retailers: Target (TGT), Dollar General (DG), Grocery Outlet Holdings (GO) and TJX Companies (TJX).

Let’s explore the full details on each below…

Target (TGT)

Target is the classiest of the discount stores. And the key to this pick is that they were doing well before the Coronavirus…and soaring in the midst of the stock up phase of the stay @ home movement…and should continue to do well afterwards as more people buy their goods at discount stores given the lingering recession.

TGT is enjoying booming business these days with comparable sales are up 20% on a year-over-year basis. Perhaps more importantly, coveted essentials including food/beverage purchases are up 50% during this period. Also over 200% gains in ecommerce as folks want to pick up their items and avoid as much contact with other people as possible. Or maybe no human contact at all with TGT’s acquisition of Shipt allowing for same-day home delivery

On the investment front Target was priced at $91 on March 25.  Today, the stock trades at $107.  Yet analysts see plenty more upside to come with an average target of $122, but top rated Citgroup analyst Paul Lejuez responded to the recent increase in sales with a fresh $140 target price on shares. Note that he street high is $150. And if that wasn’t enough reason, also consider targets ample 2.4% dividend yield to pad your final return.

(Target is one of only 10 picks currently in the Reitmeister Total Return portfolio. Learn more about Steve Reitmeister’s market outlook and top picks by clicking here).

Dollar General (DG)

Take a moment to put yourself in the position of the average consumer.  You are unemployed or underemployed.  Your personal finances are zapped to the point that you are financially shell-shocked.  Though you might have some discretionary income, you are likely to save it rather than spend it.  As a result, much of your shopping occurs at Dollar General and similar low-price, discount stores.

DG’s stock reflects this recent society-wide phenomenon.  Though DG dropped down from $166 to $136 during the worst of the coronavirus disruption, yet the stock has soared since. Now it is actually up 13% in 2020 and an even more impressive +150% the past 3 years. This price momentum is the main reason behind the Strong Buy rating given to DG by the POWR Ratings model.  

Even when the economy begins to reopen, there will be a lingering recession effecting the US for quite some time. In that light more people will be compelled to go Dollar General to lower their household expenses for essentials. That is why analysts continue to pound the table on these shares expecting even more upside like the fresh $200 price target that was put on DG shares by Vincent Sinisi, the analyst at Morgan Stanley.

Grocery Outlet Holdings (GO)

GO is a bit of a crossover between a grocery store chain and the TJ Maxx discounter model (more on TJX as the next featured stock). GO utilizes an overstock purchase model in the grocery and food sector. It sells its product through a network of independently owned stores.

Grocery Outlet only has 320 stores and provides both name brand and private-label goods. Yet they have tremendous growth aspirations to roll out to over 4,000 stores over the next decade. Even if GO comes in at half that level, it would still mark tremendous growth that early investors would be thrilled to be on board.

Let me be clear. Grocery Outlet is a great investment idea at this time as investors clear out their shelves leading to a short term boon in sales and profits. But it truly is the long term potential for GO that has me so excited.

Just imagine buying into TJ Maxx 20 years ago and riding it out to its current perch as a nearly $50 billion market cap firm. I believe GO has the potential to move in that same direction which is why I will not let go of shares when the Coronavirus scare is over.

(Grocery Outlet joins Target as one of the 10 picks in the Reitmeister Total Return portfolio. Learn more about Steve Reitmeister’s market outlook and top picks by clicking here).

TJX Companies (TJX)

This pick is different than the rest because many of TJX’s stores are not considered essential and thus closed at this time. This obviously harms the short term profit picture which is why TJX is down 24% this year. So let’s say this is more of a buy the dip pick for when the economy reopens and more people shop at their discount outlets.

Most people just think about the TJ Maxx stores. But really this company has a wide collection of brands for most things you need in your house (besides food): HomeGoods, Marshalls, Sierra Trading Post and HomeSense. This diversification is a big part of their profit and share price growth the past several years which had shares pushing a new all time high until the Coronavirus came to town.

Again, this is the buy the dip pick of the group. So with TJX shares now down to $46 we can see how appealing the TipRanks’ average analyst price target of $65 is for shares. On top of that value you get a 2% dividend yield. Yet really, when you add it altogether we are talking about buying into one of the best retailers on the planet. They just happen to specialize in discount retail, which given the state of the economy, will be seeing higher demand in the months to come.

Want More Great Investing Ideas?

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TGT shares closed at $107.82 on Friday, up $3.96 (+3.81%). Year-to-date, TGT has declined -15.42%, versus a -11.57% rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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