And The Winner Is: Family Dollar

It's official. The best performing stock in the S&P 500 for the year 2008 is none other than Family Dollar Stores (FDO), one of the simplest, and lowest cost retailers in the country with just over 6,600 stores.

FDO was up 38% for the year 2008.

Reasons to be bullish on Family Dollar:

Technical Reasons

• It's set at least four "higher lows" and "higher highs" over the last six months.
• It's 10% above the 200 day moving average and it just broke above its 50 day moving average.
• It's 20% below the 52 week high and 35% below its all-time high.
  

Fundamental Reasons

• Housing and apartment occupancy rates are going up in low-income areas where Family Dollar stores are concentrated. This means more people coming through the doors and through the check-out lines.
• Family Dollar leases the majority of their real estate. With the mounting troubles of commercial retail property companies, Family Dollar will likely be able to negotiate "no-change" lease rates as they come up for renewal and in some cases they should be able to secure lower rates just to re-sign.
• Unemployment is still trending up.
• People whose income drops substantially all of a sudden get very price conscious about even their lowest cost every-day needs. "What? Toothpaste is 50 cents cheaper over there. A lot of other stuff I buy probably is too....."

Along the same lines, Wal-Mart (WMT) was the best performer in the Dow - up 19%. You could come up with a similar list of reasons to be bullish on Wal-Mart for 2009 as well. Can you say iPhone (AAPL) anyone?

Disclosure: Author holds long positions in WMT and AAPL and is thinking about getting long FDO

Comments

[orlando appraisal]

It would seem that any alternative that is more affordable is a winner and will be so for 2009

2009 Jan 02 08:26 AM

[captainccs]

I sold FDO because I think it has done what it could do. There are so many other compelling buys out there that by comparison FDO is now overpriced.

2009 Jan 02 08:44 AM

[nickdutson]

This year will be remembered as a wipeout for the lion’s share of the equity market. Those individual shares slated to finish the year in positive territory are few, and those that thrived are even scarcer.

But one that did was Family Dollar Stores Inc., which heads into the last trading session of 2008 as the best performer among the Standard & Poor’s 500-stock index, with a year-to-date gain of nearly 30%.

In a year of struggles for the American consumer, for business spending, technology, and international growth, that FDO is the winner in the S&P 500 may not be surprising. The company operates more than 6,000 retail discount stores in 44 different states, specializing in consumer staples, including food and cleaning products, although it does sell economically sensitive items. RealtyNet Advisors, Inc offers Family Dollar properties for sale as Tenant In Common Replacement Properties.

“They do sell some apparel items and some consumer items but they’ve been tilting their strategy toward food, which we like,” says Patrick Dunkerly, lead portfolio manager of the UMB Scout Mid-Cap Fund, which owns the stock. “Part of our thesis on Family Dollar was that the lower gas prices should help them.”

With consumer confidence tumbling to an all-time low in December, it’s clear that Americans remain stressed about their outlook for the future, so the easing of gasoline prices would be more likely to fuel purchases of staples. As people try to save money, Family Dollar becomes a more attractive shopping option, and Wedbush Morgan analysts say the company has responded, improving “the assortment and quality of merchandise categories and store appearance in order to attract low to middle-income consumers struggling with their budgets.”

However, analysts are beginning to believe the stock may be hitting a ceiling, for now. Buckingham Research analysts note that investors may be reluctant to buy shares with the forward price-to-earnings ratio sitting near 15 “when earnings are expected to decline for two years in a row.” Still, the company and its rival, Wal-Mart Stores, are among the few that have continued to post year-over-year increases in same-store sales growth. Wal-Mart shares are also up on the year, having gained more than 15%.

“It’ a little bit late to get really excited about it,” says Mr. Dunkerly, who has been reducing the firm’s position in the stock. “Overall, it’s a fine company, but I think the push-back from the Street is that it’s not that cheap anymore.” Do your homework like RealtyNet Advisors did, and invest in a company that will not just survive but grow through these hard economic times.

2009 Jan 06 03:46 PM