3 Discount Retailers That Could Benefit From a Weaker Economy

 |  Includes: DLTR, KSS, TJX
by: Cabot

by Elyse Andrews

Back to school season is upon us, and I think that with the economy still struggling, people are more likely to frequent discount retailers where their dollar will go further. So today, in the midst of this market mayhem, I have three stocks for you to consider that could benefit from a weaker economy.

The first is Dollar Tree (NASDAQ:DLTR), which was hot during the Great Recession in 2008 / 2009. With the economy still down in the dumps, it’s hot again! As its name implies, the company sells everything for $1 or less. It has reported double-digit earnings growth for 13 straight quarters. It currently sits atop the Investor’s Business Daily Retail-Discount and Variety industry group, which itself is doing well. The group now occupies the #8 spot (out of 197 industries), up from #33 just three weeks ago!

The second stock is Kohl’s (NYSE:KSS), which reported just this week that its profits jumped 17% in the second quarter over the year-ago period. The store, which sells brand name clothes, home goods and other products for less, raised its forward guidance.

Kohl’s Q2 net income was $303 million, or $1.09 per share, up from $260 million, or 84 cents, in Q2 2010, and above analyst views of $1.05 cents a share. Revenue rose 4% to $4.25 billion, slightly below analyst forecasts of $4.32 billion. Kohl’s also reported that revenue at stores open at least one year increased 1.6%.

The third stock is TJX Companies (NYSE:TJX), which is similar to Kohl’s in that it offers lower-priced brand name goods like clothes, accessories and housewares. It also operates HomeGoods, Marshalls and A.J. Wright stores.

TJX doesn’t report earnings until next week, but when it does, analysts are looking for profits of 88 cents per share, a 20.5% jump from the same period last year. Wall Street also wants to see $5.43 billion in revenue this quarter, a 7.1% increase from the 2010 quarter. Analysts also expect a 6.6% jump in full-year revenue to $23.09 from $21.66 billion last year. TJX’s revenue has already risen for four quarters in a row.

As we all know, the market is in the pits right now, so I advise caution if you choose to invest in any of these stocks.

Disclosure: No positions