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Dollar General Corp. (DG) Stock Is the Ripest of the Bargain Bunch

This discount retailer's best days are well ahead of it


Dollar General Corp. (NYSE:DG) is in a battle for primacy in the discount retail space with Dollar Tree, Inc. (NASDAQ:DLTR) and in the broader space with major players like Target Corporation (NYSE:TGT) and Wal-Mart Stores Inc (NYSE:WMT).

Dollar General Corp. (DG) Stock Is the Ripest of the Bargain Bunch
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This would seem like a very difficult battle to wage, since of those three, it’s the smallest of the group by market cap. But, as the Texas saying goes, it’s not the size of the dog in the fight, it’s the size of the fight in the dog.

DG is still growing its outlets; it’s planning on building another 1,000 in 2017 as well as refurbishing and relocating 900 older stores to its grand total up to around 14,000 stores in 43 states. This kind of growth has kept it chugging along at about 15% a year for the past five years.

However, the past 12 months DG has been treading water. There is a lot of concern in the discount retailer space as TGT and other retailers continue to post uninspiring numbers. There was also some concern that merger of DLTR with Family Dollar would push DG to the side.

But that hasn’t happened. As a matter of fact, DG has been doing better than DLTR because it doesn’t have to deal with trying to improve operations at FDO’s weaker stores and selling off stores that were part of the merger deal.

While all this was unwinding, DG could focus on selling and expanding where it wanted to, rather than having to incorporate locations it might not have chosen to have. So DG is performing better than its most direct competitor, continuing to expand operations and is maintaining a solid valuation in the retail space. Oh, and it’s relatively cheap.

Another feather in its cap is DG is in a great place in the the current economy. With GDP growth for Q4 coming in at 1.9%, it indicates that the economy isn’t recovering as quickly as some would hope. That means the middle class we lost during the Great Recession has yet to get back on its feet. DG offers the products and the price points that smart shoppers are looking for.

Plus, it will not have its business stolen by online discounters. The price points are so low, that shipping charges would be a huge disincentive to customers and retailers alike. DG doesn’t have to spend big bucks to build out a massive e-commerce platform and hire an online retail team.

Finally, DG is well positioned for a company like, Inc. (NASDAQ:AMZN) to swoop in with an offer. AMZN would get a massive low-priced inventory boost, but more importantly, it would get 14,000 brick-and-mortar stores, as well as the distribution hubs to build out for its own expanding operations.

Either on its own or through a merger, DG is great shape here and, like its products, is priced to move.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.

Article printed from InvestorPlace Media,

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