Unless you have been living off the grid for the past several years, you may have noticed a change in consumer behavior.  Even with the slight improvement in the economic numbers, many consumers remain shell-shocked from the real estate downturn and unemployment situation. 

#-ad_banner-#While not quite to this point yet, the current consumer attitude reminds me of the “depression mentality” I witnessed firsthand from my grandparents. These folks were frugal with a capital F, all because of having their worldview altered during the Great Depression. Today, you’ll find that even among those with substantial disposable income there has been a distinct shift in how these folks spend their money. And it’s your job as an investor to be aware of this and know how to profit.

Conspicuous consumption is out and stealth wealth is in. Being flashy and showing bling is out of style. Take the rise in popularity of the Audi brand of automobiles as an example. While the high-end Audi may cost as much as — and sometimes more than — a flashy Mercedes Benz, the Audi conveys an image of understated elegance rather than the in-your-face bling of Mercedes. 

Among the middle and lower tier of income earners, this change in purchasing behavior is much more pronounced. Many people fear losing their jobs, so frugality has become the watchword. Keeping up with the Joneses is no longer a priority among most of Americans. Simply maintaining the current standard of living has become the goal. Most consumers are afraid of what the future may bring: High unemployment, the uncertainty of the upcoming presidential election and the economic crisis in Europe all contribute to this alteration of the consumer landscape. Even when things improve, this fear may forever change the way many consumers conduct themselves in the marketplace. 

Having noticed this shift of consumer behavior, how can investors position themselves to profit from the changes? I have identified two stocks that are poised to profit from the return to frugality. I think these companies will thrive regardless of whether or not consumers remain wary.

1. Dollar Tree (Nasdaq: DLTR) 
I call this company an “extreme discount” retailer. Its stock price has soared an astounding 700% in the past 4 years as consumer fear and the shaky economy have pushed buyers into frugality. Appealing to low income shoppers as well as anyone looking for a bargain, Dollar Tree has ramped up its high-profit food business and accepts government-subsidized food vouchers. The company currently operates 4,451 stores in North America and shares just split 2 for 1 at the end of June.  

Several prestigious investment banks have recently downgraded the stock, resulting in a pullback. Interestingly, the 50-day moving average acted as solid support despite the investment bank negativity.  The pullback has created an opportunity for the aggressive investor. My strategy for Dollar Tree is to buy on a breakout above $55 with a stop loss at $52. I can easily see shares at $65 within the year.

2. Ebay (NYSE: EBAY) 
I am an avid user of Ebay. I have purchased everything from automobiles to collectibles on this massive peer-to-peer auction site. 

The first things people who are fearful about the future sell are luxury items. Prior to Ebay, this required a trip to the local pawn shop where one would generally receive a fraction of the value of any item in cash — often because the local pawn broker was the only game in town. Now, individuals are able to sell their unwanted items to a worldwide audience, allowing the free market to set the price. As consumer confidence weakens, the appeal of converting items quickly into cash increases exponentially. Therefore, Ebay is the perfect conduit to profit from the current consumer uncertainty. Even if things improve dramatically for the economy, Ebay stands to profit as it enables consumers to buy and sell items that would be unsellable in a small geographic area or simply unavailable locally. 

Ebay has recently pulled back to the 50-day simple moving average, setting up a perfect buy opportunity between $40 and $41 per share. I would place stops at $38 and my target would be $55-plus within the next 12 months.

Risks to Consider: It’s critical to note that these companies are far from perfect. Like every other company in the retail space, there are concerns weighing. Be sure to always position size properly and always use stop loss orders. 

There is also a pending legislative issue that may dampen the appeal of Ebay and other online retailers. On July 24, Congress will consider a bill regarding online retail sales tax. Ebay and Overstock.com (Nasdaq: OSTK) are vigorously fighting the legislation, while Amazon.com (Nasdaq: AMZN) has come out in support of the bill.

Action to Take –> I like Dollar Tree and Ebay. Both companies offer a haven for consumers during these mixed economic times. I suggest buying Dollar Tree on a break out and getting into Ebay between $40 and $41 per share.