When it comes to investing in retail stocks, timing is everything. That’s why the best retail stocks to buy in Q3 are those poised to see profits soar in Q4. Cyclical stocks bound to see a boost at the end of the year or the beginning of the next one make great investment choices as we move into the second half of 2024. Looking ahead then, it makes sense to focus on the retailers that often see better results in the winter holiday season. 

By strategically investing now, you can position yourself to reap the benefits of the retail sector’s busiest and most profitable time of year. But, this year in particular, investors need to consider overall economic trends to make sure they pick the right retailers to invest in. With consumers less willing to dip into their wallets, some of the companies that usually see substantial boosts to their bottom lines as holiday shoppers flood their stores may not be so lucky this year. That’s why this list focuses on the type of companies that are more likely to be winners this holiday season: discount retailers. 

Five Below (FIVE)

While the economy is technically starting to do better, consumers aren’t necessarily feeling that applies to them on a personal level. Therefore, it’s likely that this holiday season will see a pull back on spending as consumer’s wallets are reeling from the ups and downs of the economy over the last few years. That makes Five Below (NASDAQ:FIVE) a great choice for retail stocks to invest in during the third quarter though. If budgets are tighter but people, especially parents, want to make them stretch farther, Five Below’s line up of affordable and trendy toys, beauty products and other items makes it a good bet.

At first glance, Five Below may not seem like the best choice considering it’s down 20% over the past five years and 50% in the last year. But the stock experiences a unique cyclical trend that’s worth paying attention to. If you had bought FIVE stock on July 31 and sold it on December 31 every year for the past four years, you would have profited every year. In 2023 you would have gained 3% in 5 months, but in 2022 you could have gained 38%. 

Investors interested in short-term profits in the third and fourth quarters have a strong case for buying FIVE now and selling before the end of the year for potential gains. Separately, TipRanks suggests FIVE stock may have a 59% upside, so considering the stock is at a four year low, it might be worth taking a risk on it now.

Dollar General Corp (DG)

I’m not picking Dollar General (NYSE:DG) just for its namesake brand. I’m picking it for its Popshelf retail concept that is similar to Five Below. The store offers a variety of on-trend items, with 95% priced at $5 or less. The store and its products are getting a lot of coverage on social media sites like TikTok right now, and that spells success, at least in the short term, for Popshelf. Social media buzz is crucial as it drives foot traffic and brand awareness among a key consumer segment. So for the same reason Five Below is a good Q3 retail stock pick, so is Popshelf and, subsequently, Dollar General.

Despite positive Q1 earnings, DG stock is down thanks to comments made on the quarterly call by chief financial officer (CFO), Kelly Dilts, who anticipates strong headwinds moving through the rest of year as consumers continue to face pressure from increasing prices. But the recent news about deflation came out after the quarterly call. That could surprising results for DG stock by the end of the year. 

Plus, as its Q1 earnings results did beat analyst estimates with sales of $9.9 billion, a 6% year-over-year (YOY) gain, there is hope for the discount retailer. Investors who are willing to take on a bit of risk between now and the end of the year might be pleasantly surprised. 

Ollie’s Bargain Outlet (OLLI)

The third discount retailer on this list, Ollie’s Bargain Outlet (NASDAQ:OLLI) has quietly grown over the years, with a 15% gain in the last five years, 47% gain in the last 12 months and a 35% gain year-to-date (YTD). Unlike Five Below and Popshelf that source products specifically to sell exclusively in their stores, Ollie’s unique business model focuses on buying excess inventory, closeouts and salvage merchandise, which allows it to pass significant savings on to consumers. 

Last month’s release of the company’s Q1 results were promising, with net sales up nearly 11% YOY and net income up almost 50%. These results and other positive trends at the company led JP Morgan analyst Matthew Boss to increase the target price of OLLI to $105.

The company has been strategic with its market expansion and aims to sustain a 10% growth rate moving forward. For investors, Ollie’s offers a compelling opportunity. Its proven track record of growth, coupled with its ability to thrive in any economic situation makes it a strong pick for those looking to capitalize on the enduring appeal of discount retail. Investing in Ollie’s now positions you to benefit from its continued upward trajectory this year and beyond.

On the date of publication, Philippa Main did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.