( RDK) is an unlikely marriage that is successful.

The holding company has two unrelated businesses: a global thread and yarn company and a regional supermarket chain. Ratings gives Ruddick a "buy" and expects the stock to outperform competitors

Winn-Dixie Stores

( WINN),

Ingles Markets

(IMKTA) - Get Report





Weis Markets

(WMK) - Get Report

because it's fundamentally better.

Harris Teeter is Ruddick's supermarket chain, operating in eight Southern states and the District of Columbia. The store sells a range of grocery items, personal products and prescription drugs through its pharmacies. The chain is known for cleanliness and competitive pricing. Harris Teeter accounted for 92% of RDK's fiscal 2008 revenue.

American & Effird, the other subsidiary, is a manufacturer of industrial sewing thread and embroidery. The company has an extensive global presence, with wholly owned units spread across the world, from Canada to China to Colombia.

Ruddick has posted consistent EPS growth since the beginning of fiscal 2006. In the latest quarter, EPS improved 15.9% from the fourth quarter of fiscal 2007, while net sales rose 8.79%. Winn-Dixie Stores and Weis Markets posted year-over-year declines in quarterly EPS.

Ruddick's quarterly return on assets increased to 5.7% from 5.27%, and return on equity jumped to 11.74% from 10.95%. The company has a modest amount of debt, as reflected by a debt-to-capital-ratio of 0.29. It has weak liquidity, seen in its quick ratio of 0.32.

Using the Food and Staples Retailing Index as a comparison, RDK is a bargain stock. The shares are trading at a discount based on price to book, price to cash flow, price to earnings and price to sales. The stock declined 25.18% last year and is trading near the bottom of its 52-week range of $23.82 to $39.79. RDK has an annual dividend yield of 1.81%.

Ruddick faces risks inherent to its size. Market capitalization of $1.3 billion places it in the small-cap category, and a beta of 0.77 indicates relatively strong market correlation. The stock is reasonably liquid, with average daily trading volume of 435,779 shares, but an institutional-owned percentage of 81% means the shares could get hammered if the company fails to match consensus estimates.

The supermarket industry is intensely competitive, and Harris Teeter faces risks from larger discount markets such as


(WMT) - Get Report

. Expansion is problematic because supermarkets tend to be well-dispersed and gaining regional market share is difficult unless you undercut entrenched competitors. A defined-benefit pension plan is another looming issue. Although the plan was frozen in 2005, the company still has pending obligations that exceed the pension's market value.

American & Effird may have difficulty integrating and synergizing overseas acquisitions. The company faces risks from volatile commodity prices because petroleum-based products are required to manufacture yarn and thread. A&E's geographic diversification bodes well for growth, but also presents foreign-exchange risks.

RDK is covered by five sell-side research analysts. Three rate the stock "hold" and two "buy." The economy is receding, and there is no discernible end in sight. Value and fundamentals are no guarantee of share price appreciation in a down market. Consider idiosyncratic and macroeconomic risks before investing in RDK.