Retail Stocks To Watch This Holiday Season (TUES, WSM)

US markets opened higher Friday morning on a 1.1% spike in retail sales for September, [intlink id=”1811″ type=”post”]Google’s strong earnings report[/intlink], and growing optimism over a possible solution to the European debt crisis.  According the the United States Commerce Department, the jump in retail sales market the fastest increase in seven months and could be a sign of a slowly improving domestic economy.

The rise in retail sales was boosted by strong sales of automobiles, as consumers shrugged off political gridlock and market volatility, and could potentially be giving the lack-luster recovery a boost.  Accounting for two thirds of economic activity in the United States, consumer spending data suggests third quarter growth may have been stronger than previously thought.

As the holiday season kicks off, retailers and consumers are expected to move forward cautiously, with holiday retail sales expected to rise 2.8% to $465.6 billion.  While this growth is slower than what was seen last holiday season which saw a 5.2% gain, it is slightly higher than the 10-year average holiday sales gain of 2.6%.

If you are interested in profiting from this spending boom, you may be wondering what are the retail stocks to watch in the coming months.  While the trend in consumer spending can be positive news for the industry, how a business responds to consumer demands, and their ability to handle inventory and staffing issues can mean the difference between a company’s success and a wasted opportunity to grow business and realize profits.

Retailers Learn From their Mistakes

Retailers plan to address cautious consumers with a combination of lean inventory and strong promotions. The industry has learned from the problems it faced in 2008 and 2009 when retailers were caught with high levels of excess inventories as consumers fought to regain control of their budgets by reducing debt and cutting spending.

In spite of a persistently weak labor market, modest income growth, and rising prices on clothes, groceries and gasoline, consumer seem to be trucking along as household debts have fallen, and retail sales have risen for 14 consecutive months.

Now may be the time to capitalize on this trend by adding retail stocks to your portfolio.  The following stocks have strong fundamentals, sizable market share, and technical indicators that may mean they are poised for a upside rally.

Two retail stocks to watch to capitalize on this trend in consumer spending may be at opposite ends of the spectrum, discount retailer Tuesday Morning (TUES) and high-end retailer Williams Sonoma (WSM), but they are both exhibiting strong CCI buy signals, and could be prove to have considerable upside potential.

Retail Stocks To Watch: Tuesday Morning (TUES) Williams Sonoma (WSM)

TUES-chart

The financial crisis and subsequent recession has given new life to discount shopping, as consumers look to cut spending across the board.  This trend has resulted in a boom for discount retailers, making closeout retailer Tuesday Morning one of the retail stocks to watch for your portfolio.

Although the retailer posted a 1.2% decrease in sales for the first quarter ending September 30, 2011, the growth forecasts for the company show an EPS growth rate of 22.7%.  Tuesday Morning is currently trading near its 52 week low of 3.22, and has an analysts’ price target of 5.00.

The continuing theme of reducing household expenses that will surely carry well into the coming years should bode well for the discount retailer, making this company a potentially profitable long-term investment.

On the other end of the shopping spectrum, high end retailer Williams Sonoma could also carry upside potential for your portfolio.  Williams Sonoma operates as a specialty retailer of home products, and has a market cap of $3.3 billion.  Although shares in the company are down 10.4% year-to-date, the company is showing strengths in multiple areas.

With a largely solid financial position, expanding profit margins, growth in net income, an impressive record of Earning Per Share growth, revenue growth and reasonable debt levels Williams Sonoma could prove to be an excellent retail play for your investment strategy.

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