Great Stocks for Frugal People

You have to hand it to the frugal people among us. They really know how to stretch a buck, and they're left with extra money to pursue the good life. Once you start pinching pennies the way the frugal do, you'll find that it can be a really satisfying endeavor once you get the hang of it -- and once you watch the mounting balance in your bank account.

Imagine having an extra $1,117 this month. That's how much "found money" our Motley Fool Green Light service dug up for subscribers in its latest issue. Every month, our Foolish personal-finance service examines ways in which subscribers can rack up extra bucks, and as a bonus, it also identifies inexpensive stocks, in case readers can't find another use for that found money.

That last part is important. A penny saved is a penny earned, but a penny invested can earn even more. Let's say you couldn't find another use for $1,117, and you decide to invest it. Taking the money you've saved by scrimping and investing it in a solid stock for the long term adds up to much more than you'd get stuffing it in a mattress. Just consider: Someone who invested a seemingly small $1,117 in Starbucks (Nasdaq: SBUX) stock 10 years ago would have $7,059 today, a return of 532%.

Even better, current trends suggest that there are growth opportunities in being frugal. Let's look at a few companies that frugal shoppers and investors might love right now.

Hit the bull's-eye
Do you adore Target (NYSE: TGT)? Lots of people do. Not only is it a discounter, but it's also specializing in tantalizingly hip merchandise that makes saving money fun. Lots of people swing by Target to buy cool stuff without having to break the bank.

Target's a good bet for investors, too. Although its stock price spiked last summer, it's mellowed out lately. It trades at about 18 times earnings, which may not sound all that appealing next to some of its beaten-up retail industry rivals. However, its growth has been stellar lately, compared with big rival Wal-Mart (NYSE: WMT). And with just 1,500 stores, Target still has plenty of room for growth.

Target's ability to create a "cheap chic" brand also means that it has a resilient customer base. Its stores don't simply attract low-income customer traffic but also lure more affluent shoppers. That makes it all the more resistant to macroeconomic trends -- and that makes Target all the more tantalizing.

More than just a Happy Meal
Have you ever wanted a cheap meal and knew that the McDonald's (NYSE: MCD) dollar menu fit the bill? Have you ever caved to the kids' clamoring for a Happy Meal? Don't worry, I won't tell. And don't sweat it, because you're not alone. According to the sales-trend data, McDonald's has been on a roll lately. It was in vast need of a turnaround several years ago, but, baby, it's back.

This stalwart blue chip has managed to strike a stellar balance between innovation and protecting its Golden Arches brand. For the health-minded, it has augmented its menu with healthful treats -- not to mention health-friendly versions of the Happy Meal. It has also begun work on animal-friendly initiatives in its supply chain. This company is an old-school veteran, but it's no longer behind the times.

McDonald's shares have been on quite a run this year. They're up nearly 40% and trading at 32 times earnings. So they might not look exactly cheap -- unless you consider that the company has been consistently blasting past analysts' expectations. Meanwhile, it has a beefy dividend and has been buying back shares. Cheap eats mean there's gold in the Golden Arches these days.

Getting a great buy on Best Buy
People who want the latest electronics at reasonable prices do some browsing at Best Buy (NYSE: BBY). However, that stock's presenting itself as a bargain these days, too, since it's down about 14% over the past 12 months, and it's currently trading at just 17 times earnings. Unlike McDonald's and Target, it's also got a PEG ratio lower than 1.0, a good sign that it's undervalued.

Best Buy's innovative "customer-centric" initiatives put it in a prime position for the long term, with the potential to make it look really good next to rivals Circuit City (NYSE: CC) and RadioShack (NYSE: RSH). That gives Best Buy some serious competitive advantage in the current landscape.

Green up your finances
Motley Fool Green Light not only helps you save money and improve your personal-finance acumen, it also provides stock ideas to consider for your portfolio every month. Sign up for a 30-day free trial today, and start on your path to frugal living and financial well-being. And yes, embrace your inner cheapskate.

© 2007 Universal Press Syndicate.