After throwing a decadelong party for themselves during the 1980s, American consumers have been forced to take a more sober attitude toward their pocketbooks in recent years. Some of them have actually found they like it.
"Cheap has become chic," observes Kiplinger's Personal Finance magazine. "Tight is now trendy, and frugality is the latest fad. All of this parsimoniousness has major implications for American investors. Anyone who's owned Wal-Mart stock for the past decade or so can tell you that there's money to be made by investing in companies that cash in on consumers' desire to spend less. The question is, which companies have a shot at becoming the Wal-Mart of the '90s?"In search of answers to this question, Kiplinger's recently picked the brains of some of the savviest consumer-oriented stock analysts on Wall Street. Here are the cheapskate stocks they heard mentioned most often.
AUTOZONE. Many observers believe this consumer-friendly source of reasonably priced auto parts and supplies could become the Home Depot of car enthusiasts. "If I had to choose one company and own the stock myself for the whole decade, this would be it," Kiplinger's quotes Morgan Keegan Research analyst Craig Weichmann as proclaiming.
CONSOLIDATED STORES. The king of the "close-out retailers," Consolidated is another nickel-nurser choice of Weichmann, who calls it "the strongest investment vehicle in its sector." Its ability to scoop up manufacturers' overruns and retailers' excess inventory for prices as low as 30 cents on the dollar guarantees its customers "the best price in town," says Weichmann.
FRED'S. Based in Memphis, this company is like a small-scale Wal-Mart, according to Kiplinger's. "Its 160 discount stores are also cleaner, nicer and more spacious than its competitors'," adds Robin Murchison of Southcoast Capital. "And its acquisitions of the 530 outlets of Bill's Stores, another southern-based discounter, will give it critical mass."
F&M DISTRIBUTORS. A deep-discount drug chain based in Warren, Mich., F&M could increase earnings 20 percent annually over the next three to five years while competing chains are floundering, predicts Theresa Matacia of Hancock Institutional Equity Services. F&M's secret: Strip-mall locations and a sophisticated inventory-control system.
DAYTON HUDSON. This traditional department store now derives most of its sales from Target, its discount subsidiary, and Mervyns, which aims at the middle-market consumer. Target, says Kiplinger's, has positioned itself as an upscale discounter. "It's where Nordstrom customers go to buy toilet paper," adds Dain Bosworth analyst Dean Ramos.
COTT. Analysts expect Cott to benefit from the expanding market for private-label soft drinks, Kiplinger's concludes. "It's a Canadian company which makes soft drinks for Safeway and Wal-Mart. Its stock trades in the OTC market in this country."
One caveat: Several of these stocks trade at lofty P/E ratios based on their glowing prospects. And a few have even risen in price since the analysts recommended them to Kiplinger's.