Dollar General and Dollar Tree to Open Near 52-Week Highs

Yesterday, the day that the 99 Cents Only Stores (NYSE: NDN) agree to be taken private, competitor discount variety stores Dollar General (NYSE: DG) and Dollar Tree (NASDAQ: DLTR) reached new 52-week highs of $39.40 and $80.99 per share, respectively.

Dollar General boosted its sales forecast and its shares were purchased by Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) in the second quarter. The company also launched an e-commerce site this summer. The Goodlettsville, Tenn.-based retailer has about 9,500 stores in 35 states offering such things as prepackaged foods, seasonal items and personal care items. Founded in 1939, Dollar General now has a market cap of $13.1 billion.

The price-to-earnings ratio is higher than the industry average, but so is its operating margin. The long-term EPS growth forecast is 16.5%. Twelve of 18 analysts consider it a Buy of Strong Buy; none rate it a Sell. The share price is almost 23% higher than six months ago. The stock has outperformed competitors Family Dollar (NYSE: FDO) and Walmart (NYSE: WMT) over that time.

Dollar Tree's board recently approved a plan to repurchase $1.5 billion of its common shares. Revenue is projected to grow more than 10% in the current quarter and nearly 12% for the full year. Chesapeake, Va.-based Dollar Tree operates more than 4,000 stores under various banners throughout the U.S. and in Canada. Its market cap is $9.6 billion. It was founded in 1986.

Earnings per share are anticipated to grow 17.3% over the next five years and the return on equity is 30.4%. Its operating margin is also higher than the industry average. Eleven of 19 analysts rate the stock a Buy or Strong Buy. The share price is more than 43% higher than six months ago. Over that time, the stock has also outperformed Dollar General and the 99 Cents Only Stores.

Action Items:

Bullish: Traders interested in exchange traded funds holding Dollar Tree might want to consider the following trades:

• iShares S&P MidCap 400 Growth Index (NYSE: IJK): up more than 11% in the past week
• iShares S&P MidCap 400 Index (NYSE: IJH): up more than 11% in the past week
• SPDR S&P MidCap 400 (NYSE: MDY): up more than 11% in the past week

Bearish: Or traders might want to consider this alternative position:

• ProShares Short MidCap400 (NYSE: MYY): up more than 12% in the past quarter

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