Dollar Tree’s Bargain Price Offers 15% Upside

  • While U.S. stocks have shown resilience, the maturing bull market and a flattening yield curve suggest caution is warranted.
  • In this environment, value-priced stocks with businesses that benefit during an economic pullback appear to be worthy of consideration.
  • Leading discounter Dollar Tree Inc. has become a popular alternative to mass-merchants and valuation models show almost 15% upside to recent trading levels.

Downside Focus

While assessing a stock’s upside is imperative, some of the most respected investors begin with a shift in focus: the downside. Top value investor Seth Klarman has gone so far as to make it a central tenet to his investing philosophy:

“Loss avoidance must be the cornerstone of your investment philosophy.”

With stock market indices hitting or approaching new records daily, it can be easy to get fixated on returns even in the face of lofty valuations. That may be a recipe for disaster, however, in this aging bull market:

“The road to long-term investment success runs through risk control more than through aggressiveness.”

Cautionary words from value investor Howard Marks, whose investment writings Warren Buffett highly admires. An investor wanting to acknowledge today’s risks might put more of a focus on the flattening yield curve, inflation at 6-year highs, and high levels of corporate debt.

How can one position themselves amid today’s threats? Businesses that benefit during general economic weakness is a place to start - especially when those businesses are trading at a discount to their intrinsic value.

Consumer defensive stock and leading discount variety store Dollar Tree, Inc. (Nasdaq: DLTR) could see an uptick in business during economic weakness. Additionally, valuations show almost 15% upside to recent trading levels. Let’s take a closer look at Dollar Tree’s business model, recent results, and growth prospects.

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Disclaimer: As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned. I also have no ...

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