Why Buy Retail Stocks?

Experts say stocks have strong growth potential

There are, however, pockets of retail markets where investors remain bullish, says Eric McKissack, CEO, Channing Capital Management. Investors are being drawn to specialty stores and niche stores with mass market. For instance, people are starting to warm up to Costco and Target again as they start trading up from WalMart, says McKissack. Walgreens is also getting some interest from investors. The drug store chain is a consumer staple in the high quality, low cost space. It is sensitive to discretionary spending with its broad mix of items ranging from cosmetics to baby food.

As for growth stocks, McKissack says that he is hearing a lot of chatter about Whole Foods Market, as people become more health conscience; and J. Crew, which Michelle Obama has made popular by sporting its wares. McKissack says that some analysts are also recommending the GAP Inc. The retailer has implemented a turnaround mix of traditional apparel that seems to have lured customers back.

Investors looking for strong retailers should be closely examining quarterly same-store sales looking for top line growth.  Another indicator to monitor: look for retailers that beat analyst’s estimates for the all-important fourth quarter. Companies that exceed estimates will be in the best position to capitalize on any consumer spending increases in 2010.

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