Bargain Retail Is Booming. 3 Stocks to Buy to Capitalize on the Trend in 2025

Key Points

• TJX’s off-price business is growing as it gobbles up liquidated inventories.

• Costco’s warehouse clubs are still expanding and locking in more shoppers.

• Dollar Tree’s divestment of Family Dollar could be a game-changer.

• These 10 stocks could mint the next wave of millionaires ›

The retail apocalypse -- which was caused by expanding e-commerce marketplaces, the decline of malls, and a shrinking middle class -- wiped out many retailers over the past decade. The Great Recession and the COVID-19 pandemic exacerbated that destructive downturn. However, many bargain retailers still thrived and expanded as their higher-priced peers retreated. According to Business Research Insights, the global discount retail market could continue to expand at a robust compound annual growth rate (CAGR) of 10.5% from 2025 to 2033.

Let's take a look at three of those resilient bargain retailers -- TJX Companies (NYSE: TJX), Costco Wholesale (NASDAQ: COST), and Dollar Tree (NASDAQ: DLTR) -- and see why they could be great ways to capitalize on that secular trend in 2025.

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Image source: Getty Images.

1. TJX Companies

TJX Companies, the parent company of TJ Maxx, HomeGoods, HomeSense, Marshalls, and Sierra Trading Post, is the world's largest off-price retailer. It operates over 5,000 stores and six e-commerce sites across nine countries, and it sells its products at 20% to 60% lower prices than its full-price peers do.

TJX buys up liquidated inventories from struggling retailers at rock-bottom prices. That strategy helped it expand throughout the retail apocalypse, even as bigger retailers collapsed. It also frequently rotates its products to drive return visits and "treasure hunts" at its stores.

From its fiscal 2015 to fiscal 2025 (which ended this February), TJX's revenue grew at a CAGR of 7%. Its year-end store count increased by 50%, its gross profit margin expanded from 28.5% to 30.6%, and its earnings per share (EPS) rose at a CAGR of 3%. From fiscal 2025 to fiscal 2028, analysts expect its revenue and EPS to grow at CAGRs of 6% and 9%, respectively.

That resilience makes TJX one of the simplest ways to profit from the expansion of the off-price market and the contraction of the full-price market. Its stock still looks reasonably valued at 28 times this year's earnings, and it pays a decent forward dividend yield of 1.3%.

2. Costco Wholesale

Costco is the world's largest warehouse club retailer. It can afford to sell its products at much lower margins than full-price retailers because it generates most of its profits from its higher-margin membership fees. It can keep growing as long as it keeps expanding, gaining more cardholders, and locking them in as it gradually raises those fees.

From its fiscal 2014 to fiscal 2024 (which ended last September), Costco's annual revenue and EPS rose at CAGRs of 8% and 14%, respectively. Its number of year-end warehouses grew from 663 to 891 as its number of cardholders increased from 76 million to 137 million. It maintained a healthy global renewal rate of 90.5% in its latest quarter.

From fiscal 2024 to fiscal 2027, analysts expect Costco's revenue and EPS to increase at CAGRs of 8% and 10%, respectively. That growth should be driven by its domestic and overseas expansion, its robust e-commerce sales, and its rising membership fees. Costco only pays a forward yield of 0.6% -- and its stock might seem pricey at 47 times next year's earnings -- but its evergreen strengths justify that premium valuation.

3. Dollar Tree

Dollar Tree, which acquired Family Dollar in 2015, is the second-largest dollar store retailer in the U.S. after Dollar General. It mainly serves urban and suburban shoppers, while Dollar General opens more stores in rural areas. From its fiscal 2014 to fiscal 2024 (which ended this February), Dollar Tree's number of year-end stores (including Family Dollar) more than tripled from 5,367 to 16,774 as its revenue increased at a CAGR of 14%.

Yet Dollar Tree racked up net losses over the past two years as Family Dollar's weak sales offset the strength of its namesake banner. It tried to squeeze more value from the brand by opening "combo stores" under both banners, but that strategy didn't pay off. That's why it wasn't surprising when Dollar Tree finally divested all of its Family Dollar stores this year. By selling Family Dollar, Dollar Tree freed up a lot more cash to strengthen its namesake banner. It plans to renovate more of its stores, roll out its new tiered pricing strategy (which broadens its price range up to $7) across more locations, and attract higher-income shoppers.

Analysts expect its revenue to decline 38% in fiscal 2025 as it sells Family Dollar, but they still see its revenue growing at a CAGR of 6% over the following two years. They also see its EPS turning positive again this year and growing at a CAGR of 13% through fiscal 2027. Its stock still looks reasonably valued at 21 times this year's earnings, and it could attract a lot more investors once it demonstrates that its newly streamlined business can keep growing.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and TJX Companies. The Motley Fool has a disclosure policy.