3 Discount Retail Stocks To Buy As Industry Evolves

The retail industry has gone through an immense amount of change over the last few years, as many publicly traded brick-and-mortar stores now fight to stay in business through the online shopping revolution Amazon (NASDAQ:AMZN) helped start.

In 2017, more than 8,600 stores are expected to close their doors, according to Credit Suisse (SIX:CSGN) analysts. This number tops the number of brick-and-mortar locations that closed during the 2008 recession.

In these turbulent times for the retail industry, many investors have stayed away. But the potential for a GOP tax code overall, which would cut the corporate tax rate from 35% to 20%, could help the industry immensely.

A recent National Retail Federation post titled “Why Passing Tax Reform Is Good For Retail,” highlighted why a Republican tax bill could greatly benefit the retail industry. The post noted that both the Senate and House bills benefit retailers for three major reasons: “They address retail’s high, unequal tax burden; They enable reinvestment; They provide tax relief to consumers.”

Still, if the GOP bill isn’t passed, one retail sector—the discount segment—is already experiencing a boom in a more traditional brick-and-mortar manner. Discount retailers have capitalized on their core customers and started to expand their footprints.

With all of this said, let’s take a look at three discount retail stocks that investors might consider right now.

1. Ross Stores, Inc. (NASDAQ:ROST)

Shares of the discount retailer with the tagline “Dress for Less” jumped 31.62% in the last 12-weeks and rest near their 52-week high. Ross Stores is also currently a Zacks Rank #2 (Buy) and sports an overall “B” VGM grade.

In November, Ross reported Q3 net earnings of $274 million, up from $245 million in the year-ago period. On top of that, the off-priced clothing retailer’s third-quarter sales climbed 8%.

For the current quarter, based on our Zacks Consensus Estimates, Ross’ revenues are projected to surge 12.56% to hit $3.95 billion. The company’s earnings are expected to climb 19.48%.

What’s more, within the last 60 days, Ross has received 11 positive full-year earnings estimate revisions against zero downgrades. The discount retail power has also beat or matched earnings estimates for 14 straight quarters.

2. Dollar Tree, Inc (NASDAQ:DLTR)

This retail chain is one of the only true “dollar stores,” where everything is sold for a dollar or less. Dollar Tree is currently a Zacks Rank #2 (Buy). With the integration of Family Dollar, Dollar Tree has opened more stores and focused on strategic initiatives, which led to the company raising its full-year expectations after posting solid Q3 earnings.

Shares of Dollar Tree have climbed nearly 38% in 2017, which almost quadruples the “Retail - Discount Stores” industry average and has helped push the company’s stock price to a new all-time high.

Dollar Tree is currently trading at 22.12x earnings, matching its industry’s average. The stock also sports a solid 1.17 P/S ratio. What’s more, our Zacks Consensus Estimates currently call for Dollar Tree’s Q4 earnings to climb 33.29% and its sales to pop 13.47%.

3. Dollar General Corporation (NYSE:DG)

Dollar General is currently a Zacks Rank #2 (Buy) and rocks an overall “A” VGM grade. This discount retailer is continuously expanding, and 2016 marked the 27^th consecutive year of sales growth at established stores.

Shares of Dollar General have gained 22.55% this year, which tops the S&P 500 average by more than 5%. The discount giant is currently trading at 20.16x earnings, which marks a discount compared to its industry’s average.

Based on our current Zacks Consensus Estimates, Dollar General’s Q3 EPS are expected to hit $0.94, which would mark a 5.24% year-over-year jump. Along with this bottom line growth, Dollar General sales are projected to hit $5.80 billion, which would mark a 9.07% year-over-year improvement.

Dollar General is expected to post its third-quart results on Thursday, Dec. 7.

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