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Trading Down With Family Dollar

Family Dollar Stores jumped about $3.50, or 14%, Wednesday on a strong first-quarter earnings report. The move put FDO in company with Monsanto as some of the only good performers on a down 245-point day in the Dow.

FDO’s better-than-expected quarter sparked the stock’s rally. Earnings per share came in 2 cents ahead of Wall Street’s consensus, and management raised guidance for the second quarter and the full year. At best, analysts were expecting this year to stay flat. So that increase and the stellar numbers sent FDO higher.

Cramer recommended this stock back on Oct. 15. And it was only up 3.9%, versus 14.7% for the S&P retail index, before the earnings report. Wall Street just didn’t believe in Cramer’s trade-down thesis: As the recession kicked in, shoppers would flock to Family Dollar to save money. Even FDO’s move to accept food stamps and credit cards was ignored. But in the end Cramer was right. This investment paid off.

Now he’s asking that essential investing question: Hold on or take profits? Family Dollar tends to do well during downturns. The stock was up 41% in 2001 alone. And if you believe, as Cramer does, that this recession will continue, it probably makes sense to own FDO. But just to be sure, he invited Chairman and CEO Howard Levine on the show. Check out this video for an in-depth look at Family Dollar’s prospects going forward.









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