Two Picks to Become the Next Wal-Mart Stores, Inc. (WMT): Family Dollar Stores, Inc. (FDO), Dollar General Corp. (DG)

While Sears Holdings does provide the opportunity to invest alongside billionaire Eddie Lampert, who is also the majority shareholder, Chairman of the Board and CEO, there is no guarantee that he will ultimately be successful with this venture and the current numbers do not seem to justify investment. The retail business has a long history of being unkind to outsiders and it has upheld that tradition with Mr. Lampert so far. While there is the prospect that Mr. Lambert will show his past success can be applied in the retail field, there just seems to be a great deal of risk involved in reaching for profits in Sears.

Wal-Mart Stores, Inc. (NYSE:WMT) looks to be reasonably valued based on its current dividend yield and projected earnings growth over the next five years. People have been trying to pronounce it finished for a long time and it has been quite successful at proving them wrong. It seems well positioned to provide slow steady growth and has been raising the dividend steadily for the past several years which should provide investors with a very reasonable compounded return for the foreseeable future. I believe 10% to 11% annualized total returns to be a reasonable expectation for investors in Wal-Mart.

Family Dollar Stores, Inc. (NYSE:FDO) and Dollar General Corp. (NYSE:DG) seem to be the options in this group that offer the opportunity to deliver 12% to 15% annualized gains in combined dividends and share price appreciation but they also appear to be employing many of the same techniques that helped Wal-Mart become the world’s largest retailer.  Considering the added bonus of generating exceptional rates of return on equity and deployed capital, they appear to be poised to deliver excellent returns for investors in the next few years.  In addition, if either of these relatively small players were to move on to become the next Wal-Mart Stores, Inc. (NYSE:WMT), the returns for those who invest now and are patient could be enormous. These are two stocks that deserve the consideration of all serious long-term investors.

The article Two Picks to Become the Next Wal-Mart originally appeared on Fool.com and is written by Reuben Tyler Wofford.

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