“If you want a consistent operator that doesn’t need to do anything too crazy to beat the estimates, that’s Dollar General. Even though they’re lowering prices, I think that’s a good long-term strategy to win over customers,” the “Mad Money” host said.
“Dollar Tree is more of a high-risk, high-reward turnaround play, where the stock could have a lot more upside if they pull off the execution. But if they screw up, you can kiss your gains goodbye,” he added.
Cramer said that the two companies’ contrasting pricing strategies has helped Dollar General come out on top. Dollar Tree announced late last year that it was raising the prices of most of its products to $1.25 to help offset pandemic-driven costs.
In contrast, Dollar General said in an analyst call on March 17 that the retailer has “leaned into” its $1 products, including through plans to set up more in-store displays of items at that price point.
“While Dollar General’s pitching this as a move to help their customers, who often struggle to make ends meet, especially if they’re on a fixed income, it has the added advantage of luring away disaffected Dollar Tree customers who don’t like paying an extra quarter,” Cramer said.
Dollar General stock declined 2.13% on Thursday to $222.63. The company reported quarterly earnings in line with forecasts and a miss on revenue earlier this month. Dollar General also forecast better-than-expected full-year sales and raised its dividend by 31%.
Cramer recently highlighted Dollar General as a dividend stock to buy.
Dollar Tree stock fell 0.11% to $160.15 on Thursday, notching a new 52-week high of $162.13 earlier in the day. The company missed Wall Street expectations on revenue in its latest quarterly earnings.
The host said that Dollar Tree stock has gained overall in recent months and highlighted the company’s executive board changes at Dollar Tree as a reason. The retailer named Richard Dreiling, a former Dollar General executive, as Dollar Tree’s executive chair earlier this month due to an activist investor campaign.
Piper Sandler and Loop Capital Market upgraded their positions on Dollar Tree after the move. “Activist pressure can work wonders, especially if it’s a smart activist,” Cramer said.
Sign up now for the CNBC Investing Club to follow Jim Cramer’s every move in the market.