Buried Treasure #1: Discount Shopping

Now, hurt by an economic recession that has spawned a 25-year-high unemployment rate of 8.5 percent and home foreclosures that are estimated to reach 2.4 million this year (responsiblelending.com), many more shoppers–in all economic groups–are finding the allure of stretching our dollars at discounters even more attractive.

While Wal-Mart's sales grew higher than analysts' estimates, Thomson Reuters reported that specialty chains like Abercrombie & Fitch saw a 20% sales decline in January and same-store sales at high-end department store retailer Nordstrom's dropped 11.4%.

Whatever you want to call it–the return to basics, aversion to toxic spending, or living within your means–this trend is taking on the characteristics of an avalanche, roaring through consumer buying patterns and creating untold opportunities for a handful of companies (and their investors!)

Private-Branding is Set to Soar!

Discount shopping is just one part of the 'savings' trend. With consumers making every penny count, there's one more buying pattern that is ready to take off.

As of the end of 2008, private-label had cornered 21.9% of all package-goods categories and retail channels, according to Information Resources Inc. And an even more interesting reflection on the state of the economy is this statistic: In households earning more than $100,000 per year, private-label grew 1.3 points in fourth quarter 2008, up from a 0.1 point growth in the first quarter.

The Private Label Manufacturing Association reported that sales grew by $5.4 billion last year, to a record $74 billion. Here's what it boils down to: One of every five items sold in the US is a store-brand, and those numbers are growing exponentially!

And what it means to you is this: A handful of discounters and private-label manufacturers are on target for staggering boosts to their earnings. The upshot of those results will mean more analysts and institutional investors jumping on board these stocks, providing fabulous opportunities for investors like you to begin rebuilding your portfolios.

Growing Profits Even in a Recession

In 2008–a year in which even the best of companies had a tough time staying afloat–the private-label food sector actually grew by 10% to a record $74 billion.

I believe the best opportunity for us in this sector is Overhill Farms (AMEX: OFI). Overhill makes prepared frozen foods–entrees, plated meals, bulk-packed meal components, pastas, soups, sauces, poultry, meat and fish specialties and organic and vegetarian offerings–for branded retail, private label, foodservice, and airline customers.

Best of all, this company made a lot of money for the second quarter in a row–$0.16 per share for its fiscal first quarter, ending in December. That's a 56% increase over the prior year. And that's after posting record net income for the previous quarter, when the company's earnings soared by 140%.

Overhill Farms is our kind of buried treasure. It's trading between $3 and $4 per share but has all of the characteristics of a financially sound, mega-growth company. The company is beating the pants off its competition in terms of sales and earnings growth, margins, and return on assets and equity.

I believe OFI has the potential to not just double but possibly more than triple. Buy OFI up to $3.50 with a target of $10. I recommend using stop losses right now to control risk, so either set a limit with your broker or make a note to yourself to sell the stock if it unexpectedly falls 30% below where you bought it.