DG and FDO: The battle of the dollar stores

Current analyst sentiment for Dollar General is being reported as negative and the analyst consensus is hold. Overall it appears that analysts expect that Dollar General will perform below expectations for 2007, although of all the analyst declarations I reviewed the unanimous opinion was that DG shares will make upward progress through the year.

A contrasting opinion prevails for Family Dollar, with analyst sentiment being reported as positive yet with FDO still only garnering a rating of hold. The analysts' positive projections are markedly similar for both retail operations. It would appear that the positive sentiment for FDO is based upon past market performance more than it is based upon any expectations for the future.

If we look at the two year charting for the two companies and use current share price position to determine who has more room for improvement within their respective averages, Dollar General is currently showing more room for improvement within their average and thus has more room to grow. So if I was looking to choose between the two companies in an effort to get a better return for my invested dollars, I would most likely be tempted to buy into the company which is showing by average that it has more room to grow. Brokerage house declarations can be misleading in the jargon that they use. Most often, a rating of "buy" indicates that value is up and there is little room for growth. Brokerage initiations with a rating of hold often signal to me that a company's stock value is within the buying range if it shows potential for growth and when the big boys start hinting at a "sell" rating I generally see actual buying opportunities if the company is sporting healthy fundamentals.

I'll repeat my assertion that retail operations shall have a tough 2007 on almost all fronts. I don't foresee any large gains year over year and that goes most especially for the largest of the retailers. My personal focus for retail investment this year would remain restricted to high end retailers and those particular opportunities which are presented by unsubstantiated short term value decreases such as where Dollar General appears to be right now.

Lastly, at the risk of stepping on toes, I think we need to look at those analyst initiations less from the perspective of where a stock is and more from a perspective of where those stocks are going. Generally, it's already too late when the big brokerage houses state their positions on a company's share value. Unless you're sitting one click from buy or sell and you are right on top of your portfolio when the big guys state their positions, the action has already happened and it's too late for you. That's why I like to think of those brokerage driven investment strategies as a Cramer-istic type investment flow. I suggest that we stop getting sucked into the turbulence behind the heavy money movements. Smart investing is done by predicting future direction and not by merging in behind the flow.