U.S. Retail Sector Ripe With Deals for the Choosy

Investors looking to cash in on a U.S. retail comeback will need to be as selective as the shoppers who scoured stores and websites for the best deals this holiday season.

When the U.S. economy was humming, investors could place reasonably safe bets on a retail stock price quote, since growing consumption lifted most names, said Patricia Edwards, founder of wealth management firm Storehouse Partners.

"Over the past year and a half, as the economy's gone south, it's really separated the men from the boys in retail," she said. "It is so much more of a stock market quote. You have to absolutely know the companies and walk the stores."

Edwards' stock picks include chains that got shoppers to buy, and with good margins, such as Target Corp (TGT.N), Wal-Mart Stores Inc (WMT.N), Costco (COST.O) and Kohl's (KSS.N).

She said J Crew Group Inc (JCG.N) did "phenomenally well" with attractive clothing and little discounting that left shelves largely bare the day after Christmas by some accounts, while Abercrombie & Fitch (ANF.N) stores were not crowded.

Other industry experts pointed to clothing chains like Gap Inc (GPS.N), which made a big bet on plaid, and Urban Outfitters (URBN.O), which drew young buyers with sparkly tops and simply constructed blazers, as outpacing rivals this season.

Retailers' profitability throughout the 2009 holiday season likely improved from a historically dismal performance in 2008, when the financial crisis slammed the brakes on consumer spending and forced retailers to discount products deeply. But the jury is still out on whether total holiday sales in 2009 rose or declined from a year ago. More....