Rich Stocks for a Steal

Wal-Mart stumbles along near its 52-week low, as Neiman Marcus charges ever higher. Costco prods the bottom of its range, while Nordstrom takes up a permanent position on the new high list. Anheuser-Busch gets clobbered as Fortune Brands—maker of the tony Vox vodka and Dalmore single-malt Scotch—just keeps rallying. Kroger can’t go up; Whole Foods can’t go down.

Idle moves by an insane market? Nope, just a recognition that the Zeitgeist has changed: People want to feel and act rich these days. It’s no longer chic to shop with the proletariat. It’s no longer cool to drink with the other cement-heads, the blue-collar nickname of choice for those who belly up to the bar for Buds. Now it’s about feeling and acting rich, even if you can’t really afford to do more than pose as wealthy.

For much of the nineties, consumers—and stock pickers—flocked to companies that gave the most value for the least amount of money. We liked the low prices of Wal-Mart. We knew we were beating the system when we shopped at Costco, because it had those giant volume discounts. We purchased knockoffs with labels that looked like they were made by Procter or Colgate because we “knew” they weren’t any better or worse than the name-branded selections. Weren’t those ripoffs anyway? Dollar stores ruled: Family Dollar and Dollar Tree had the most impressive growth among almost all retail genres, including the online types.

Somehow, though, in the past couple of years, a new trend has come to the fore, one in which people, by spending a few bucks more, are bent on looking and feeling as flush as Donald Trump or Mark Cuban, to name just two reality-TV wealth idols. Out went the desire to find a bargain, in came the aura, if not the reality, of wealth and profligacy. It was like the nineties never happened, and we were right back to the late, great eighties, when showing off was all but mandatory.

One hundred million people may shop each week at Wal-Mart, but damned if we’re going to be one of them. We don’t hurt that badly. Dollar stores went from being red-hot in the past year to ice-cold (the publicly traded companies with Dollar in their names have been among the bigger casualties of 2005). Overnight, it seems, companies that thrived on our chariness have come under assault in the markets. Everything that smacks of the basement rack has headed straight to the basement.

People are bent on looking and feeling, by spending a few bucks more, as flush as Donald Trump.

Take the generics. Companies that emulate rich and famous brands, companies like Perrigo, the private-label manufacturer that makes products that look like, say, Pepto-Bismol, but are store-branded, had once been Wall Street darlings. Now Perrigo hugs the 52-week floor. Ralcorp, the maker of so many private-label, store-branded cereals, just reported a disastrous quarter, while Kellogg’s share, long static versus the generics, is now on the increase. Low-end tobacco companies languish as Altria, the maker of Marlboro, the most expensive butts brand, trends higher.

Nowhere, though, is this trend more obvious than in retail and liquor, where the highest-end stocks just won’t quit and the value players can’t seem to catch a break. Right now, as I write, a bidding war has broken out between Constellation Brands and Fortune Brands for the premium alcohol labels made by Allied Domecq. Both potential acquirers are willing to pay multiple billions of dollars for a group of spirits, including Courvoisier, Beefeater, and Sauza, that had long been considered no-growth categories. At the same time, Anheuser-Busch can barely rally out of its multiyear low despite being steadily accumulated by Warren Buffett, the acknowledged seer of buying low and selling high. Beer sales, for the first time in a decade or more, have declined by single digits every month since the year began, while high-end-spirit makers are seeing high single-digit and low double-digit gains because of the newfound popularity of expensive mixed drinks.

The starkest share take is occurring in the nation’s supermarket wars. For years, the major supermarkets were losing share to the Costcos and the BJs. You would always drop your jaw when you saw the number of Lexuses, BMWs, and Mercedes in the lots of those warehouse stores. The supermarkets did everything they could to match prices and sizes with these wholesalers, but always came up short as warehouse chic stole mind-share and wallet-share.

Now, however, both cut-rate supermarkets and bulk-box megastores are suffering at the hands of Whole Foods Market, perhaps the greatest growth story short of Google and Yahoo in the investment ether. In return for a patina of health, coupled with dynamite service and an ultra-attractive venue, people are willing to pay $20 to $30 more per grocery cart for the privilege of shopping at Whole Foods. Before you think that such a trend can’t last, remember that there are now 9,000 Starbucks in the world, charging upwards of $4 for a cup of coffee readily available at thousands of other places for a fraction of the price, and yet the high-priced java is still thriving at a high-single-digit pace. I think Whole Foods could add three times as many stores as it has now before it saturates the market.

No company’s been hurt by this newfound trend toward the expensive more than Wal-Mart, at one time the most revered retailer in the world. These days, when lowest price no longer has cachet, Wal-Mart’s sales have stagnated, even as middlebrow stores like Target, JCPenney, and Federated have thrived. I used to joke that Wal-Mart gave shopping an almost Soviet-style feel. But I had no idea how unappealing Wal-Mart had become until I recently listened to a trader at a major Wall Street firm recommend to me a “swap out of Wal-Mart into the faster-growing GUM.” That’s right, the now publicly traded GUM, the old communist Macy’s, for heaven’s sake. Could there be a more visible sign of downfall than a trade out of America’s largest discounter into the Muscovite version?

While these trends have been bubbling up over some time, it’s only this year that they have become so evident that they can make you money. I think the trade-up gambit’s here to stay; Whole Foods, Target, Starbucks, Constellation, and Fortune Brands all seem headed higher. Neiman’s just got a gigantic takeover bid. Nordstrom might not be far behind.

The way out of the bargain basement isn’t clear for those stuck plying those wares. Dollar Tree won’t do better as Couple Dollar Tree. Hard to imagine Wal-Mart touting upscale merch and higher prices. It just might take a recession for the value plays to get their groove back, and though the economy at times seems to stumble, it’s hard to see a slowdown dramatic enough to ignite the stocks of these companies any time soon.

James J. Cramer is co-founder of He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions he takes may change at any time. At the time of this writing, he owned Altria and Yahoo. Get all of James J. Cramer’s stock picks via e-mail, before he makes the trades, by subscribing to Action Alert Plus. A two-week trial subscription is available at

Rich Stocks for a Steal