Discount retailers are rounding out the earnings season.
"As I look at the whole discount retailer space, it looks like to me that this is a group that is positioned very well to continue to outperform as we move into the second half of 2020," Craig Johnson, chief market technician at Piper Sandler, said Friday on CNBC's "Trading Nation."
On Dollar Tree, Johnson said the stock appears to have reversed a monthslong downtrend and is on its way back to its 50-day moving average at about $93. That implies roughly 14% upside.
"Switching gears and looking at Dollar General, when I look at this particular stock it's entered what I call an HLTR which is a high-level trading range, and that's more or less just a consolidation pattern," said Johnson. "If we see a topside breakout of that consolidation range around $185, it suggests to me that we're starting a whole other leg higher, and we clearly are buying the shares at that point in time."
Dollar General closed out Friday's session just shy of $179.
Michael Binger, president of Gradient Investments, said valuations have become stretched for Dollar General and Costco but agrees with Johnson that Dollar Tree shows potential upside.
"The valuation is cheap here. It trades at 15 times its normal valuation range. … The thing that held them back a little bit is their product mix. They have less essentials, less food, and they have more things like seasonal party goods, greeting cards. So social distancing does not exactly play out as good for them as it does in the other ones, but they're adding coolers, they're getting more food. The economy is normalizing so if I was to take a shot at one today, it would be Dollar Tree," Binger said during the same segment.
Dollar General and Costco are higher this year. Dollar Tree has fallen 13%.