Thursday, May 26, 2011

Family Dollar is Backed by Ackman

In a previous post, Family Dollar (FDO) is briefly mentioned as a retailer that may suffer a cost pinch because it may find difficulty in passing on costs to its relatively lower-end customers. However, the stock is not a good short candidate because it is backed by renowned hedge fund manager Bill Ackman.

In today news, Ackman acknowledged that he had been actively buying shares in FDO, believing a push in the management (implying that he may adopt an activist role) allows the retailer to catch up with its peer, Dollar General (DG). The hedge fund mogul also cites a 70% upside for the shares ($92 dollar per share including dividend. In the meantime, he also views FDO as a potential candidate for leveraged buy-out.

In sum, although I believe that low-end retailers will suffer the most in this round of cost pinch, I would definitely restrain myself from shorting these companies that are backed by strong hands.

No comments: