Costco Wholesale Corporation (COST), Dollar General Corp. (DG): Now Is a Good Time to Buy Retail Stocks

Macy’s (NYSE:M) is a great stock to play a complete economic recovery which has not been seen yet. The company is committed to provide shareholders with value by recently increasing the quarterly dividend and announcing a $1.5 billion increase to its share buyback program. Looking forward, the company affirmed its outlook for same store sales growth of 3.5% and earnings of $3.90-$3.95, while the analyst consensus is in the mid range, at $3.92. The second-largest retailer is in a “sweet spot” for growth, and will make a nice addition to any portfolio.

Dollar stores are a small piece of the pie, but shouldn’t be ignored.

The dollar stores represent a small piece of the pie when compared to the “big boys” but this doesn’t mean investors should turn their backs and ignore the potential. Dollar General Corp. (NYSE:DG) recently reported somewhat disappointing first-quarter results, and the pullback made the shares “cheap,” opening an attractive entry point for investors with a longer-term frame of mind.

The company’s report wasn’t all negative as Dollar General Corp. (NYSE:DG) opened 165 new stores and relocated another 207. Analysts at Bernstein believe that sales can rise by mid-single digit percentage levels over the long-term, and profit margins still have room to grow as well. Also important to note is the company’s commitment to grow shareholder value through potential future share repurchases and dividends.

Another attractive alternative in the dollar store category can be Dollar Tree, Inc. (NASDAQ:DLTR), which has a healthy balance sheet and comp outlook looks better when compared to Dollar General, especially in the second half of 2013. The company still has plenty of room to grow both domestically and internationally.

Conclusion

As long as the economic factors remain favorable, retailers are poised to do well in the second half of 2013 and beyond. Costco remains a top pick, however, any of the companies I have mentioned remain a solid investment. Whenever I go shopping at a retailer whose stock I follow, I always make it a habit to ask someone if they have noticed an increase in foot traffic over the past weeks, months, or years. I encourage you to do the same as there is no better indicator of growth than by asking someone who has seen it first hand.

Jayson Derrick has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale.

The article Now Is a Good Time to Buy Retail Stocks originally appeared on Fool.com.

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