Dollar General Corp. (DG), Dollar Tree, Inc. (DLTR): Buy This Company If You’re Bearish on the Market

Management’s innovation

Beginning in late 2012, Family Dollar Stores, Inc. (NYSE:FDO) partnered with one distributor – McLane – to provide frozen and refrigerated food, tobacco, and candy at its stores. The benefit of working with one wholesaler is product consistency across the entire chain, and (theoretically) lower administrative costs than working with 50 or more other companies, as Family Dollar previously had been.

While Dollar General Corp. (NYSE:DG) is trying to include tobacco and frozen foods, Family Dollar Stores, Inc. (NYSE:FDO) already began that last year with the McLane partnership – management is ahead of the competition.

The company also recently signed on The Procter & Gamble Company (NYSE:PG) to make Duracell batteries the only brand carried in Family Dollar Stores, Inc. (NYSE:FDO). In the third quarter earnings call, Michael Bloom, the president and COO, reported that Family Dollar now purchases Duracell factory-direct, which has improved margins on battery sales by 10%. These deals represent the sort of thoughtful, far-reaching spadework that will enable a company to beat out the competition.

Foolish conclusion

If you believe the economy is going to tank, look at the dollar stores and move into a great defensive stock (one that is almost counter-cyclical). Of them, I view Family Dollar Stores, Inc. (NYSE:FDO) as the best pick given management’s forward-thinking deals, although a rising tide for the sector would lift all boats. Watch out for Wal-Mart Stores, Inc. (NYSE:WMT), which has the resources to compete in a big way.

Michael Douglass has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Buy This Company If You’re Bearish on the Market originally appeared on Fool.com.

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