One battle that always seems to be raging is value vs. growth. Growth investors embrace stocks like Apple (AAPL) and Google (GOOG). While growth stocks rarely pay dividends, they are supposed to make up for the lack of shareholder compensation with outsized capital gains. On the other hand, value investors look for blue chip names that the market has passed by or that have fallen out of favor with investors. Value investing is usually associated with defensive investing. With the recent market rally looking a bit tired, value investing may be back in vogue. That’s why we’ve been highlighting various Frugalpalooza ideas this year.

With that in mind, we decided to take a look at an ETF that is well-suited to the value investing school of thought: the aptly named Vanguard Value ETF (VTV). VTV is interesting in that it holds a huge number of stocks, 472 according to recent Vanguard data. The top 10 holdings account for nearly a third of VTV’s assets. To be sure, this is not an ETF for investors looking for small caps. The median market cap of VTV’s holdings is nearly $43 billion.

If investors decide they’ve had enough of the high-beta, riskier stocks that drove the recent rally, value funds like VTV should benefit in a big way. Investors should note that nearly a quarter of VTV’s holdings lie in the financial services sector. Names like Bank of America (BAC) and Wells Fargo (WFC) can be found among VTV’s top holdings.

That’s not a cause for concern because VTV is full of other quality names like oil giants Exxon Mobil (XOM) and Chevron (CVX), consumer titan Procter & Gamble (PG), and health care bellwether Merck (MRK). This is a blue chip lineup and is an ideal way to play defense. Owning some of the most venerable names in corporate America may be a good idea in tough times.

The bottom line is investors need not be pigeonholed by old Wall Street labels. There’s rarely a bad time to embrace value stocks. VTV is one way to do it.

Disclosure covering writer, editor, publisher, and affiliates: Long AAPL. No positions in any of the ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

One consequence of recession is that drivers often hang on to their cars longer. To keep an older vehicle in good working order, you need to spend money on maintenance and spare parts. Those factors make Monro Muffler Brake (MNRO) a compelling play on the thrifty consumer. New York-based Monro offers an array of mundane auto services from oil changes to brake repair. They’re a sizeable company with 710 stores in 17 states.

With a market cap of just under $617 million, Monro qualifies as a small cap stock. However, many on Wall Street view it as a mid cap play. Either way, investors should note that small caps historically outperform larger stocks coming out of a recession, and Monro’s 2009 performance has a growth-stock feel. Monro shares have outpaced the S&P 500 in recent months – all the more impressive when considering that the Cash For Clunkers program was going on during that same time period.

Even so, Monro does not seem overvalued by most standards. Trading at just 17 times forward earnings, one could argue Monro is a value stock with growth stock traits. That P/E ratio is roughly in line with the broader market, but it also puts Monro at a discount to its peers. The company reported a 30% jump in fiscal second-quarter profits even as sales slumped a bit. This indicates the management team knows how to control costs. Over the past year, sales have grown nearly 9% and earnings per share more than 23%.

Want more reasons to like Monro Muffler Brake? The aftermarket for cars and trucks is a significant business opportunity for Monro at $240 billion in the U.S. and $370 billion globally. Furthermore, with some 3,000 auto dealers expected to close in the U.S. by the end of next year, more drivers will need places like Monro to work on their cars.

The bottom line is that slack auto sales and lower consumer spending isn’t always a bad thing. Some niches can outperform even when the consumer is struggling. Monro Muffler Brake is in just such a niche. To go with a solid stock for the value-minded driver, buy MNRO.

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Finally, U.S. consumers may have learned their lesson in the wake of the financial meltdown of 2008. People are trying to cut spending, reduce debt and add to savings. This makes now a good time to look at stocks that benefit when consumers tighten their purse strings. We’ve highlighted a few of these names recently like Dollar General. Today we have one more that is just as compelling: American Italian Pasta Company (AIPC).

American Italian Pasta is the largest maker of dry pasta in the U.S. That puts the company in prime position to benefit as penny-pinching consumers eat at home more often. Yes, it’s a small cap company, but small caps have historically outperformed their larger peers when the economy is emerging from a recession. Nimble small caps tend to lead top-heavy large caps during a recovery because of their efficiency.

Despite an 8% drop in sales, American Italian reported sterling fourth-quarter profits that beat analyst estimates. The company earned $15.8 million, or 73 cents a share, compared with $7.3 million, or 36 cents a share a year earlier. Analysts expected the company to earn 68 cents a share.

Kansas City-based American Italian is shifting its focus to retail sales. This is a good move given the fact that restaurants are cutting back purchases due to lower traffic. That lower traffic actually works in American Italian’s favor because pasta is an ideal way for families to enjoy a good home-cooked meal at a reasonable cost.

Investors have taken note of the American Italian story. Shares are up about 120% in the past year compared to a 33% gain for the S&P 500 over the same time. However, the shares still trade at only 10 times forward earnings and just above two times book value. Americans are looking for ways to save money and that could mean AIPC shares have even more room to run to the upside. To buy into value-minded Americans eating at home more, go with AIPC.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

According to Inflation Data.com, inflation is non-existent right now.  They currently post inflation at -1.29%. Deflation has reigned for the last three quarters. Although they see the trend heading in the other direction right now, I wouldn’t be surprised if we see another quarter of deflationary activity. Bear in mind, the “official” Consumer Price Index differ from  non-official tallies, but any way you look at it, inflation is weak.

That’s one reason to consider cash investments.  Inflation won’t eat away at the purchasing power of cash you store in the bank. Smart Money recently discovered some high-yield accounts available at community banks and credit unions.

These “rewards-checking” programs offer depositors much higher yield than other traditional checking or savings accounts – some as high as 6%. Granted, they want to see some activity because they receive interchange revenue when you use your debit card. This helps the bank recover the expense of the high rates.

It makes sense for these institutions to offer attractive rates.  They’re up against behemoths like Wells Fargo and Chase, which can offer lower rates because people place a value on their convenience and too-big-to-fail stability.

Shop around for high-yield checking accounts in your area at community banks and credit unions.

In theory, Dollar General shares should perform well in this weak economy. With nearly 9,000 locations in 35 states, the company is a favorite of cost-conscious consumers. Dollar General competes with stores like Walmart (WMT) and Kroger’s (KR) Fred Meyer subsidiary by offering both name-brand and generic items at reasonable prices. Selection ranges from groceries to home decor.

Dollar General targets households with a median income of less than $75,000 per year, making it a direct competitor to Walmart, but this competition doesn’t appear to be hampering Dollar General’s earnings power. In October, the company said its fiscal second quarter profit more than tripled thanks to better margins and an 8.6% surge in same-store sales. The company also plans to increase store openings and remodel certain locations. Oddly enough, Dollar General has no stores in California, the largest state by population.

That’s the good news; now, what could go wrong? First, with IPOs it is always a good idea to ask why the owners are cashing out. Private equity firm KKR and Goldman Sachs bought Dollar General in a leveraged buyout before the credit crisis unfolded, leaving the company saddled with more than $4.1 billion in debt. That’s an enormous sum under any circumstances.

The company expects to raise $750 million in the IPO. Nearly $478 million of those proceeds will be used to redeem debt. The company had a cash balance of $515 million at the end of July and paid a dividend of $239 million in September. (No word yet on whether Dollar General will pay a dividend upon going public.) It’s a cash cow so long as the debt load can be managed and eliminated.

Dollar General has had 20 consecutive years of same-store sales growth. Its stores are typically cash flow positive within a year of opening. Those are positive signs and could mean this discount retailer won’t trade at discount prices for very long. To buy into a Walmart alternative that targets cost-conscious consumers, go with Dollar General. You may not be able to buy at the IPO price, but the shares will be available to the public soon.

The small town of Allegan, about half-way between Chicago and Detroit offers a bright spot in the dreadful Michigan economy. After a Rockwell Manufacturing plant closed in the 1980s, Allegan became known for the largest county fair in Michigan and drugs – of the legal variety. The town is home to one of the largest over-the-counter (OTC) drug manufacturers in the world: Perrigo Company (PRGO).

Founded in 1887, Perrigo is now a multinational corporation employing 6,000 people worldwide at facilities in the US, Israel, United Kingdom, Germany, and Mexico and will soon be starting operations in India. The mid-cap firm is almost big enough for inclusion in the S&P 500. In other words, Perrigo is a respectable entity in the Healthcare space paying out a decent 0.7% dividend.

Here are a few reasons we think Perrigo is worth your attention. For one, it’s doing what good companies should do during a down economy: growing. Despite the recession, PRGO reported $2 billion in sales for its fiscal fourth quarter, up 16.2% from a year ago. Gross profits were up 10%, and annual net income grew to $174.6 million – compared to $154.4 million the previous year.

Part of their success has been from acquisitions. In 2008, Perrigo picked up JB Labs in Holland, MI. In addition, they just bought an 85% stake in Mumbai-based Vendants Drugs and Fine Chemicals. This acquisition will help Perrigo build an Indian presence. PRGO plans to move some operations from Germany and Israel to India, which should lead to further operational efficiencies.

Diversification is another reason Perrigo has weathered the economic storm so well. PRGO manufactures analgesics, cold/cough/allergy/sinus, gastrointestinal, smoking cessation, and nutrition drugs. This variety insulates against some of the sector risks. In addition, being multi-national, PRGO has opportunities to expand in European, South American, and now Asian markets. We like PRGO’s prospects for steady, long-term, global growth.

Looking at the chart, Perrigo has been in a solid uptrend since March. The shares have recovered a big gap-down set in February and recently broke above $30. With swine flu and other common ailments likely to spread this winter, we like the near-term prospects for PRGO. Go with PRGO for a solid healthcare pick.

The Great Depression taught Americans about thrift, a virtue largely absent from society in recent years.  Now thrift is mainstream once again. Opulence is out and living frugally in. The New York Times points out these new realities…

“Millions of Americans spent years tapping credit cards, stock portfolios and once-rising home values to spend in excess of their incomes and now lack the wherewithal to carry on. Those who still have the means feel pressure to conserve, fearful about layoffs, the stock market and real estate prices.

Some suggest the recession has endured so long and spread pain so broadly that it has seeped into the culture, downgrading expectations, clouding assumptions about the future and eroding the impulse to buy.”

In addition to curbing their purchase decisions, consumers are saving more. According to the Bureau of Economic Analysis, Americans saved 2% of their income in 2007. The savings rate has improved to over 4% in recent months – a 100% improvement motivated by economic uncertainty.  We’re living in an age of scarcity now – or so thinks the culture.

Why this change? The US economy has lost 6.7 million jobs since the onset of the recession in December 2007. Everyone knows someone who has lost a job, making the income problem palpable. Many have lost income due to the downturn, making the problem real. Some could lose our jobs in the next round of cuts, making the problem scary. No wonder consumers are thrifty these days.

With consumers accounting for around 70% of the US economy, investors should take note of the renewed sense of value. Companies known to provide products and services at a better price will do better than those perceived as more costly. Whether or not the short-term rally continues, look to the new value culture for new opportunities.

Last week Fed Chairman Ben Bernanke spoke optimistically about a global recovery. US home sales have started to improve giving cause for more good feelings. Whether or not Bernanke, EU Monetary Chief Trichet, or any other central banker is correct about pulling out of a recession will be known only in hindsight. However, the effects of recession are already present – especially for the super rich.

The “super rich” are the wealthiest of the wealthy. Think Bill Gates and Warren Buffet. According to CNBC, in 1985 there were only 13 billionaires in the United States. Today there are more than a thousand. But the super rich aren’t always defined by the size of investment portfolios. Wealth has exploded over the past generation to the benefit of thousands.  The fortunes of CEOs, entrepreneurs, and hotel heiresses rose on the tide of global prosperity. According to the New York Times, “in the late 1970s, the cutoff to qualify for the highest-earning one ten-thousandth of households was roughly $2 million, in inflation-adjusted, pretax terms. By 2007, it had jumped to $11.5 million.”

But the same recession that changed your grocery-buying habits has also hit the super rich. Last week the New York Times detailed the recession’s financial blows to the super rich. Gates, Buffet, the Wal-Mart heirs, and Google’s founders each lost billions over the past two years.

Many of the not-as-super rich lost a chunk of their equity too. Per the Times, “Last year, the number of Americans with a net worth of at least $30 million dropped 24 percent.” UC-Berkeley Economics Professor Emmanuel Saez speculated the cutoff for the top one ten-thousandth of households is now $6-$8 million – nearly half of what it had been. Saez commented that a return to pre-recession numbers would require a new financial bubble.

One of the more drastic examples of recession-related pain is John McAfee, founder of the McAfee Anti-Virus suite. At his peak, McAfee was worth $100 million. Right now, he lays claim to only $4 million. One of his final residences is on the auction block in New Mexico. After he sells that ranch, he plans to relocate to less-expensive Belize.

Although the super rich may be less wealthy, they have not disappeared. Private jets are still flying and rich people are still buying sports teams – albeit at wholesale prices. The Chicago Cubs are being sold for under a billion by the super rich Ricketts family. Media-mogul Ted Turner is still the largest landowner in the country – besides the US government, and three of the original five Wall Street investments banks are still in business.

In other words, the super rich are still with us. If we are to believe the central bankers, the super rich may be worth even more this time next year.

For those who do have money, one of the more popular places to spend it is Wal-Mart (WMT), which confounded Wall Street once again with unexpected profits.  (By the way, I am sorry to use the word “unexpected” so much.  The fact that I must do so should tell you something about the ability of the analysts who set these expectations.)

Anyway, Wal-Mart had larger profits but smaller revenues for the quarter.  The Bloomberg story contained the following very odd sentence:

“The chain also attracted more customers, helped by price reductions on its Sam’s Choice Black Angus beef patties, baked beans and flat- panel televisions to lure consumers grappling with shrinking paychecks and the worst unemployment since the Great Depression.”

There’s the real story in eight short words: beef patties, baked beans and flat-panel televisions.  This is what we’re all buying now, apparently.  Americans are nothing if not practical.  Football season is approaching quickly and Wal-Mart is mercifully giving us a chance to prepare at a bargain price.

The reality is that we can’t postpone reality forever, yet many of us are still trying.

Disclosure:  no position

Last month I was interviewed by Laura Cohn of Kiplinger magazine.  She was aware that we had recommended Netflix (NFLX) to our subscribers and wanted to see if I still liked the stock.  I told her I did, and introduced her to our Frugalpalooza theme.  She liked the idea so much that it made its way into the subtitle of her article “6 Stocks Benefiting From the Recession.”  Another one of our picks, O’Reilly Automotive (ORLY), also made the story.

Disclosure: no positions