Trading Nation

After Five Below's sharp decline, chart analyst backs competitor as buy

Here are the best discount retailer stocks, according to investing pros

Five Below had a chilling day to begin the week.

The discount retailer plummeted 11% on Monday in its worst performance since 2015.

Ari Wald, head of technical analysis at Oppenheimer, says the discount retail space looks weak here, but there is one name he'd bet on.

"The group as a whole has really been troubled. It doesn't really stand out for us. [But] probably the one that does stand out to us for exposure here would be Dollar General," Wald said on CNBC's "Trading Nation" on Monday.

"The stock has really just traded sideways for the last five months and that's helped work off some previously overbought conditions. That sideways consolidation is all occurring above support, above both its rising 200-day moving average and the bullish breakaway gap from August as well," said Wald.

Oppenheimer rates Dollar General as a buy with a $180 price target. That implies 17% upside.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, says Five Below looks to be a well-run company, but he grows wary of Amazon muscling in on discount retailer's territory.

"Some very smart people on Wall Street … tell me that this [discount retail] business is non-Amazonable. It's all impulse buys, but I wonder if we're not starting to see impulse buys online," Schlossberg said during the same segment. "I wonder if Amazon is moving down market. We'll know in a quarter or two if they can right the ship. In a quarter or two, a lot of these stocks are going to be very strong buys, but for now I would really put a pause button on it just to see how the business goes."

Five Below on Monday guided for fourth-quarter sales of $685 million to $688 million. Consensus was for $717 million. Its stock was up 1.7% in Tuesday's premarket.