NEW YORK (Reuters) – More investors are looking at discount retailer shares as Dollar General Corp (DG.N) and Dollar Tree Inc ( tDLTR.O), which performs better during an economic downturn, with a view to assessing changes in consumer behavior, although higher tariffs may erode the ability of companies to act as an economic audience.
Fund managers and analysts say they are looking for “trade-down trade” signs, where consumers shop at department stores or supermarkets in favor of the more limited option but lower prices at deep discounts. For example, between December 2008 and December 2011, Dollar Tree shares increased by almost 200% as the penny consumers focused during the Big Recession, and the S&P 500 benchmark was only 39% achieved. in the same time.
For the year to date, shares of Dollar Tree are up 7.3% as it integrates the purchase of former Student Dollar competitor, while General Dollar shares are up 28.4%. It is intended that both companies will report earnings August 29.
“The good news is that consumers are increasingly shopping at the dollar shops during periods of economic weakness. We would not expect a large increase in sales, but we estimate that sales will remain stable at the dollar shops while other companies are feeling more pain, ”said Mark DeVaul, portfolio manager at Hennessy's Equity and Revenue fund, who has a job. in Dollar Tree.
“We believe that the treasure hunt shopping atmosphere will continue to drive traffic and that they subtract them from competition from Amazon.”
There are no signs of a recession in the US at present, although investors are more concerned that the longest economic expansion in US history is coming to an end.
Goldman Sachs said earlier this month that the trade war between the US and China is set to decline and that it no longer expects a trade deal between two of the world's largest economies before an election t US presidency 2020.
According to Morgan Stanley, if the US increases tariffs on all imports from China to 25 per cent for 4-6 months, and if China accepts countermeasures, three-quarters would suffer an economic recession.
The spread between Exchequer bond yields slipped shorter and longer below zero earlier this year, reversing the reversal of the so-called recession yields. The 30-year Funds result hit very low last week, a sign that investors are betting on slower economic growth and low inflation.
Trade trade against economic weakness could benefit from deep discount retailers such as Five Below Inc (FIVE.O), National Vision Holdings Inc (EYE.O), and Ollie Bargain Outlet Holdings Inc (OLLI.O) have strong balance sheets, which observed Anthony Chukumba, managing director of Loop Capital Markets. High quality retailers like Best Buy Co Inc (BBY.Nhe might get worse, he said.
“With the likelihood of recession evolving, we believe that investors should begin to pay more attention to the specialty capital structures of retailers,” he said.
In particular, General Dollar could continue to perform better due to its strong management team and inventory control, said Charles Grom, analyst at Gordon Haskett Research Advisors.
“This is one of our best ideas and we think that there is a higher chance of raising their guidance” when the company reports its findings and “as did the Goal”, he said. Target Body Shares (TGT.N) jumped over 19% and striking highlights after the company had improved sales growth than expected on Tuesday.
But deep discounts like Tree Dollars and General Dollars are not exempt from the economic effects of the trade war between the US and China. Dollar Tree, for example, imports 60% of its inventory from China and may be forced to raise prices if it is no longer able to obtain concessions from its vendors, said Dendaul, Hennessy's fund manager.
“They might have to break the measure and raise prices, but they are in danger of kissing many people and not getting them back,” he said.
Reporting by David Randall; Edited by Jennifer Ablan and Nick Zieminski
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