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3 Stocks on the Right Side of Retail Now

There's a few pools of spending in this dry sector


NEW YORK – Once a seemingly unstoppable force, the U.S. consumer continues to face challenges like unemployment, weak real estate markets and high oil prices. In other words, it can be tough to think about buying retail stocks. After all, this week, Borders announced it will be completely liquidated.

But the sector is huge, and not all spending has dried up. If you look around, you’ll see there definitely are opportunities for investors.

Let’s take a look at three top retail stocks to consider right now, even though conventional wisdom is leading investors away from the sector:

Casual Male Retail Group

Casual Male Retail Group (NASDAQ:CMRG) serves the niche of providing apparel for big and tall men, with brands like Nautica, Cutter & Buck and Ralph Lauren. Actually, it’s the largest player in the category, with about 500 stores.

Over the past couple months, the shares have been increasing at a steady rate. Then again, Casual Male looks poised to benefit from a couple positive trends.

First of all, I think the economy will have a stronger back half, which should mean improved job growth and income.

Next, Casual Male has been making investments in its new format, which is called Destination XL. A store ranges from 6,000 to 12,000 square feet, which provides for more selection. The result should be higher operating margins and sales volumes.

Keep in mind that the Casual Male addresses a market of about $6 billion. Yet the company has only a 7% share. In other words, there is much room for growth.

Wet Seal

Wet Seal (NASDAQ:WTSLA), which operates 542 stores, sells discount apparel for women and teens (the two brands include Wet Seal and Arden B). While it has struggled for a couple years, the company appears to be making a turnaround. For example, it posted a healthy 7.3% increase in same-store sales in June.

Wet Seal also has taken actions to lower its cost structure, so the cash flows have been strong. In fact, about 35% of the market cap is in cash.

Finally, Wet Seal should benefit from the experience of its new CEO, Susan McGalla, a former president of American Eagle (NYSE:AEO).

Abercrombie and Fitch

Abercrombie & Fitch (NYSE:ANF) is the symbol of youth coolness. While it’s a lucrative business, it still is incredibly difficult to sustain, especially with premium pricing. But the company’s CEO, Michael Jeffries, is a top-notch retailer.

Basically, as the economy continues to grow – even at a moderate rate – this should help juice revenues and profits. At the same time, the company has been aggressive with international markets.

Abercrombie & Fitch also is building a strong web business. Actually, the company operates four websites, which include brands like abercrombie kids, Gilly Hicks and Hollister.

Hilary Kramer writes for InvestorPlace.com and is the editor of the GameChangers stock newsletter. She owns CMRG and WTSLA stock.

Article printed from InvestorPlace Media, https://investorplace.com/2011/07/3-stocks-retail/.

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