Take Fred’s, Inc. (NASDAQ:FRED), for instance, a deep-discount retailer with 600 stores in 15 southeastern states. Investors have punished the stock, sending it to levels that value it less than half of its competitors.

It’s differentiator is serving low-income customers in rural and inner-city neighborhoods, far from Target and Walmart stores. Many customers prefer the ease of access to Fred’s stores, as opposed to having to drive to the nearest big box retailer.

With annual sales of $1.8 billion, its merchandise and business model is similar to that of its two biggest competitors: Dollar Tree (NASDAQ:DLTR) and Family Dollar Stores, Inc.(NYSE:FDO).

But that’s where the similarities end. In the past year, Fred’s shares have fallen nearly 15% while its competitors have each risen over 20%. The reason? The company was just plodding along, languishing under an anemic, lethargic management.

Back in February, Fred’s Board of Directors decided to make a change, and it brought in a new CEO, who’s been generating quite a lot of buzz since his arrival.

Bruce Efrid – an industry veteran – hasn’t wasted any time: he’s closed stores that were underperforming, gave the remaining ones a new look and feel, and remade company inventory procedures.

Efrid was just what the doctor ordered: Fred’s has strongly outperformed its peers since his appointment. Even so, the stock still looks like a relative bargain. Shares trade at 1.4 times book value, while Dollar Tree and Family Dollar Stores are both twice that, suggesting Fred’s shares are undervalued by 50% compared to its peers.

Fred’s has very little debt and a nice cash pile of $46 million. Efrid’s confident his changes can increase top line sales by 10%. He also is gunning for a corresponding increase in margins from their current 1.8% to 3%.

If he’s successful, Fred’s shares could easily pop by 50-75% in the coming months, handing investors who take a position now a nice Christmas present.

Source: Fred’s, Inc. (Nasdaq: FRED): Stock of the Day

As I was doing my usual bout of “marathon weekend reading” I came across an interesting piece on Warren Buffett’s recent trip overseas. For those who don’t keep tabs on the “Oracle,” Buffett has been touring Europe for the last week or so in an effort to promote Berkshire Hathaway on the other side of the pond.

Reason being, Buffett’s looking to start buying up “family owned, privately held” businesses on the cheap overseas.

It’s difficult for him to find “Buffett-sized” deals in the U.S. anymore, so it only makes sense that he’d look for greener pastures elsewhere. However, Buffett also gave another reason for why he might want to start placing his bets in other parts of the world…

My friends and I have been debating the “recession” topic for a while now: Are we currently in one? Will we run into one this year or next? What will the effects be?

But when I read that Buffett thinks the U.S. is already in a recession and it will be “longer” and “deeper” than any we’ve seen for quite some time, I definitely began to think less about “what if we go into a recession” and more along the lines of “What should I do with my money now?”

There are dozens of questions (and even more answers) on TickerHound about which sectors hold up the best during a bear market, but a recent question is what inspired me to write today’s article:

“Will certain retailers do well during a recession?”

Traditionally, retailers don’t do well at all during a downturn — consumers start to curtail their discretionary spending as times get tougher, and items like clothes, cars and all the other little “extras” aren’t ranked very high on the “purchasing priority list.” However, if you really think about it, there are some retailers that “should” do rather well during a protracted downturn.

The fact of the matter is, people aren’t going to completely stop buying the little extras, they’ll just be more selective about where they buy them.

While I’ve come a long way since my childhood, I still remember what it was like when times were tough around my house. We were a blue collar household, three kids, my parents were always hustling at the end of each month to make ends meet — so when one of us needed new clothes, school supplies, etc, we’d take a trip to the closest discount store and bargain hunt.

Without doing a survey of every household in the U.S., I’d bet that when times are tough and a recession is imminent, most of America behaves the same way. In fact, if you take a look at a 10-year chart for some of the discount retailers, you’ll immediately see that their stocks do better when the market is doing worse!

So here are a few discount retailers that I think are worth digging into if you’re looking for some “Retailers for a Recession”:

1. Dollar Tree (DLTR: NASDAQ)

• Market Cap: $2.99 Billion
• P/E: 15.67
• Dividend: N/A
• 12 Month Price Gain (Loss)%: (19%)

2. Family Dollar Stores (FDO: NYSE)

• Market Cap: $2.76 Billion
• P/E: 13.5
• Dividend: 2.5%
• 12 Month Price Gain (Loss)%: (40%)

3. Fred’s (FRED: NASDAQ)

• Market Cap: $438.65 million
• P/E: 41.13
• Dividend: 0.7%
• 12 Month Price Gain (Loss)%: (25%)

4. 99 Cents Only Stores (NDN: NYSE)

• Market Cap: $538 million
• P/E: 85
• Dividend: N/A
• 12 Month Price Gain (Loss)%: (46%)
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