WalmartYou might have heard that Wal-Mart (WMT) may never be great again. One reason for the discount giant's big-time problems could be the number of consumers who are trading down -- way down, in fact, to the rock bottom of the retail world.

It's hard to resist merchandise priced at just a buck. That's why the dollar-store concept is doing such a brisk business – and not just among already-thrifty bargain hunters. As the U.S. economy continues to struggle, the dollar-store model gains even more relevance to an increasing number of budget-conscious or newly constrained consumers.

For investors, not all dollars stores are created equal. Here's how to shop for these stocks, and stretch your investing dollars in this retail subsector.

Are There Any More Bargains in Dollar-Store Stocks?

There was a time when trolling dollar-store stocks presented easier pickings. During the past year, however, more investors have caught on to the trend. That gain in popularity shows up in the group's price-to-earnings ratios and share prices. Take a look:

  • Dollar General (DG) recently reported triumphant quarterly results, including an 11% increase in sales and a 5.9% surge in same-store sales. However, its quarterly profit only increased 3.4%. Dollar General shares are currently trading at 19 times earnings.
  • Dollar Tree's (DLTR) recent quarterly tidings revealed slowing sales growth. Net income increased 21.7% in the second quarter. Sales increased a robust 12%, while same-store sales jumped 4.7%. Still, the company forecast same-store sales growth to slow to a low single-digit percentage increase in the current quarter. Dollar Tree trades at 20 times earnings.
  • Family Dollar (FDO) doesn't report its latest quarter until Sept. 26. In June, the company reported a 6.5% increase in net income. Sales climbed 7.8%, and same-store sales rose 4.7%. Family Dollar shares trade at 17 times earnings.

After seeing such results, you might be tempted to reconsider investing in discount giant Wal-Mart. After all, the Bentonville behemoth's shares trade at a far cheaper 11 times earnings. But Wal-Mart is still struggling to turn its sluggish U.S. sales around. What's giving it fits? People flocking to dollar stores.

Where to Bet Your Bottom Dollar

Given dollar stores' trendy popularity and higher multiples, investors need to choose carefully.

I believe Dollar Tree is the most appealing of the three dollar-store stocks above, even though it recently unveiled a disappointing forecast. Dollar Tree doesn't have much debt to speak of: Its total debt-to-capital ratio is just 14.3%. Dollar General's debt-to-capital ratio is a more uncomfortable 38.9%.

Although Family Dollar may look like the cheapest stock of the three, it hasn't reported the strongest results over the past few years, having clocked annual sales increases in single-digit percentages. Dollar Tree has reported annual sales increases of about 12% for two years running.

The bottom line is that Dollar Tree is a strong player with a good balance sheet. If it's trading at a slightly higher multiple, there's probably a reason to pay a little more for a history of growth and a more conservative stock. It looks likely that Dollar Tree will deliver more bang for investors' bucks for the long haul. And what's just as important as nabbing a bargain? Getting back more than you paid in value.

Motley Fool analyst Alyce Lomax owns no shares of any of the companies mentioned. The Motley Fool owns shares of Wal-Mart. Motley Fool newsletter services have recommended buying shares of Wal-Mart. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart.

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I work at Weis markets andwe have a section in the grocery store for $1.00 items exclusively. There are things in the store that were made in china. However, I have to admit, Weis is an American company, located and HQ'ed in Sunbury PA. It does its best to promote American made and locally supports the farmers in the Commonwealth as well as New York state and other nearby states. Very rarely will I go to a dollar store. It's usually something very specific that I know is at that store.

September 02 2011 at 8:27 AM Report abuse rate up rate down Reply

Stop bad-mouthing Wal-mart! I am debt free - everything's paid off - car loan, mortgage, etc. Wal-mart stock took care of these. My profit sharing and 401k , my Wal-mart stock , Oh, my God, they are incredible. I am on cloud nine after working for this company more than 25 years.

September 02 2011 at 4:23 AM Report abuse rate up rate down Reply
1 reply to ypeale's comment

Good for you, but Mao Mart deserves every bit of criticism it receives. I used to buy almost everything at Walmart. Now, I buy very little because of all the reasons that everyone else has stated on here. Poor quality clothes and other cheap quality junk, lack of selection, understaffed stores, and a board of directors who refuse to acknowledge these most basic complaints.
If you don't like the criticism, take off your rose colored glasses and do something about it! Your stock price isn't going to last if your customers aren't happy with your dirty, understaffed stores!

September 02 2011 at 6:32 AM Report abuse +1 rate up rate down Reply

Wal Mart problems is they use to pride themself made in America, almost everything they sell is made in China and thats why America is failing. They pay those poor people over there make between .08 - .18 cents an hour just like the sweat shops in USA a long time ago.

September 02 2011 at 3:08 AM Report abuse +3 rate up rate down Reply

i don't know what walmart you go to or work for fworfe,the two walmarts where i live are not cheaper,we go to other
food stores and beat their price. milk,eggs,ect.are high at walmart. when walmart first build here they had good
price on things as the super stores were built the price went up on all things. walmarts are not for the people only
for their selfs to make that buck.i have seen mark ups as high as 78% on some things. no, i do not care if walmart
goes under.we have other good stores to go too.

September 02 2011 at 2:18 AM Report abuse +1 rate up rate down Reply

It is truly a shame that the people who complain the loudest about foreigners, imported products, and exported jobs are the ones least likely to use English properly. That being said, the newly created "downwardly mobile" crowd is finding out that saving money isn't easy. The amount of time spent cutting coupons, scouring ads and hunting down "bargains," can feel like a full time job. It must be weighed against the value of your time and, these days, the cost of gas. Warehouse bulk buys can be a blessing or a disaster. If you are used to paying full retail Wal Mart may seem very inexpensive but be very cautious; the quality of some of the store brand products can be very poor. However, this summer, it was the only store selling a modestly cut Tankini in the extra small size my 16 year old needed. The $30 store brand tankini has held up very well. Wal Mart does offer name brand products at prices which are at or below other major retailers but if you are willing to wait for a sale you can find the same products elsewhere at much deeper discounts. Dollar stores are great for arts and crafts supplies, greeting cards, party decorations and, if you're lucky, name brand overstocks or closeouts. I wouldn't trust dollar stores for food, toothpaste, medicine or anything a child might chew on. An ingredient found in antifreeze was discovered in toothpaste which was made in China and sold through discount stores a few years ago. Personally, I have found Target's sale and clearance items, combined with the RedCard's "5% off at the register" program, to be the best deals all around. For clothes, Khols' clearance racks, combined with the prefered shoppers' coupons, can't be beat. For those who are brand conscience, Marshall's is the place. Marshall's is hit or miss and much of the name brand stock is not really overstock. As far as discounters go, I find that Marshall's usually has the best prices on high quality handbags and shoes. Large outlet shopping centers may offer even better prices. I know people who swear by them. I wonder what will happen to all the new discount shoppers when the economy regains its balance. Will they ever be able to shop retail again? Will their conversions last or will their "sticker shock" fade? Hopefully we wont need to wait much longer to get the answer.

September 02 2011 at 2:12 AM Report abuse rate up rate down Reply

Wal-Mart's epitapth has been written several times in several ways in several languages in several countries.
But they just keep on retailing and for the most part out-thinking and out-manuevering all the competition.
If you think they are going to lie down and roll over just because of some specialty store's blip in the bottom line, forget it.
And if you're wondering why millions go to Wal-Mart stores every day, you haven' been there lately.
Their fruit and vegetables alone---the price and the quality---cannot be beat.
The other staples---bread, cereal, milk, eggs, meats, fish, poultry---, no problem there.
But, if for some reason you have a strong dislike for Wal-Mart, no amount of facts will convince you.
Meantime, competition is just fine, and if Wal-Mart gets even cheaper, thank-you.

September 02 2011 at 12:58 AM Report abuse -1 rate up rate down Reply
1 reply to fworfe's comment

Are you the Charlotte guy that moved out west???? Big Guy!

September 02 2011 at 1:15 AM Report abuse rate up rate down Reply

My husband used to build Walmarts and Sams in 7 states. He said that Sam Walton was always at these openings and would also pay for the buyer with the biggest cart! Do you think anything happens like that today? No, after Mr. Walton died, the new congloramate companys began building Super Walmarts which were so large that customers could not travel throughout the stores without tiring out! It is much easier to go to a Dollar General or, most of all a Bill's Dollar to get cheaper and better items. Walmart has put themselves out of business by selling things that are not made in America as Mr. Walton wanted it to be done. So, why should they think they should stay in business. I owned a small retail store, bridal registry and gift shop, and they sure put me out of business. Now girls register for items at Walmart or most of all, Target! So, as far as most older people are concerned, we hope they all go out of business and let the little man have another chance at selling quality products, made in America.

September 02 2011 at 12:43 AM Report abuse +2 rate up rate down Reply
Rita Marie

Never thought I would see the day when another store would be cheaper than Wally World!
Or have more crappy junk made by under age kids in the cheap labor pool overseas!

September 02 2011 at 12:31 AM Report abuse +1 rate up rate down Reply
1 reply to Rita Marie's comment

Sorry to say that when the guy brought in 10-11 years ago that moved from Charlotte to out west took the store down had a bad dream for wally World. Just another bad move by a man. What do you think Mrs. Wally World would have done?????????

September 02 2011 at 12:55 AM Report abuse -1 rate up rate down Reply
Fireball Roberts

I wish wally world would go out of business. I would not shop there if they were giving junk away for free. Buy AMERICAN if you can before we all are out of a job. I know all stores sell crap from China, but some stores you still can buy AMERICAN made stuff. Even the stuff wally buys from the U.S.A. is bought so cheap that the AMERICAN company can,t make money. Wally tells them how much they will pay and take it or leave it. WAL-Mart sucks. I used to work for them idiots. They are no good.

September 02 2011 at 12:29 AM Report abuse +3 rate up rate down Reply

Tell the greeters to open a register. Never enough registers open and the savings have evaporated to a point where they're just not worth the hassle of dealing with.

September 02 2011 at 12:16 AM Report abuse +2 rate up rate down Reply
1 reply to surfherenomail's comment

The lines are long , I agree...............................

September 02 2011 at 12:49 AM Report abuse +2 rate up rate down Reply