×

A dollar and a dream: Why dollar stores are soaring

Dollar store stocks are surging. Dollar Tree hit an all-time high on Wednesday, and Dollar General hit a record high on Tuesday, as investors may look to retreat into safer stocks during a turbulent time in the stock market.

For Joseph Feldman, retail analyst at Telsey Advisory Group, the dollar store space is a solid one for investors looking for quality and defense.

"We're favorable on both stocks. We like dollar store space, it's a bit of a safer trade," said Feldman.

In a Wednesday interview with CNBC, Feldman says Dollar General has begun rolling out new store formats and more time-efficient, single-line checkout queues to their locations; the chain is also expanding its refrigerated and frozen-food selection, becoming a more attractive shopping destination to lower- and middle-income shoppers, he said.

Dollar Tree, said Feldman, has the potential to drive profitability as it continues to expand its brand after buying Dollar General's main competitor, Family Dollar, last year. And everything in Dollar Tree is one dollar, as opposed to Dollar General, which is a multiprice point selection.

From a chart-oriented perspective, "These are momentum stocks," said Ari Wald, technical analyst at Oppenheimer, on CNBC's Trading Nation.

Wald added that Dollar Tree saw its "big breakout" above $84, and recommended buying the stock.

Some take a different stance on the dollar-rama, however.

"I love the business model; in fact, we've owned Dollar Tree in the past. Unfortunately, though, the valuation at this point does not make any sense to us," said Chad Morganlander of Stifel Nicolaus.

Though Dollar Tree revenue growth had surpassed expectations over the last several quarters, said Morganlander, investors should hold on the stock for value portfolios. The stock "may very well play into a momentum portfolio, but for our portfolio, it's a hold to avoid, at best."

He cautioned against investing in either stock, citing "euphoria" in the space.

"A year from now, or 18 months from now, if these stocks correct by 15, 20 percent, or if time ticks on and earnings fill in the valuation, then we'll take a good look at them again, because they're real high-quality companies," added Morganlander on CNBC's Trading Nation.

"It's just, you want to be careful if you're looking for value stocks."

Correction: An earlier version included a portfolio manager's factually incorrect comparison between the two stocks.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect