The stock market seems to be acting as if a large number of us are going to go back to our high-consumption ways in a relatively short time frame. But given the way that many shoppers are hunting down bargains and coupon-clipping, the typical person is likely going to remain conservative for quite a while. Because of this, investors should be optimistic that discount retailers and their respective stock prices can continue to do well in 2010.

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Family Dollar Makes Perfect Cents
Family Dollar (NYSE:FDO) sells a variety of merchandise that appeals to the bargain hunter in us. In a nutshell, its wares include everything from apparel to home products, and are generally sold for under $10. With the economy still not in its best shape, this is a sweet spot.

One of the first things that stands out is that the company has beaten Wall Street expectations the last two quarters straight, and beaten estimates in three of the past four reported quarters. If this keeps up, it may attract a good deal of attention from investors in the beginning of the year, when many will be looking for investment opportunities.

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The company trades at a very reasonable 12.6-times this year's estimate of $2.25. That is attractive, given that it is expected to grow its EPS to $2.49 next year. However, the shares would be more fairly valued at about 15-times this year's estimate, which would equate to a price of nearly $34. (Learn more about buybacks, see: A Breakdown Of Stock Buybacks.)

As for the first-quarter earnings, Wall Street expects the company to earn 47 cents. If it can beat that number, investors could flock to the stock, and it could then trade at more than $30.

Other Low-Priced Players
In this almost pathetic environment, Wal-Mart (NYSE:WMT) will do very well comparable to others, as its prices are low and its selection of merchandise is an attractive enough to draw in shoestring shoppers. Dollar Tree (Nadsaq: DLTR) is also worth considering, at 14.3-times this year's estimate. Finally, while 99 Cents only Stores (NYSE:NDN) can have a good year next year, it is a little expensive right now at just over 20.4-times this year's estimate.

The Bottom Line
With many individuals struggling, the discount space could be in the spotlight for some time to come. Not only does Family Dollar trade at reasonable multiple of expected earnings, but it has also done well at beating analyst expectations, and the stock isn't being fairly valued by the investment community.


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