Investors looking to cash in on a US 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 US economy was humming, investors could place reasonably safe bets on a retail stock index, 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 picker's market. 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., Wal-Mart Stores Inc., Costco and Kohl's.
She said J Crew Group Inc. did "phenomenally well" with attractive clothing and little discounting that left shelves largely bare the day after Christmas by some accounts, while Abercrombie & Fitch stores were not crowded.
Other industry experts pointed to clothing chains like Gap Inc. which made a big bet on plaid, and Urban Outfitters 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.
By category, sales at specialty electronics stores rose 5.9 per cent over the holiday season from a year ago, according to tracking firm SpendingPulse, a unit of MasterCard Advisers. Jewelry sales also performed well, it found, ringing in a 5.6 per cent increase.
Stifel Nicolaus analyst Richard Jaffe believes most retailers will deliver on the holiday season they promised, due to "thoughtful, well-planned promotional efforts coupled with tightly controlled inventory and reduced expenses."
Despite the pressure of snowstorms leading up to Christmas, Mr Jaffe said he expects clothing retailers including Aeropostale Inc, Gap, J Crew, Nordstrom, Kohl's and Limited Brands Inc to deliver better-than-expected results.
Stifel has a "buy" rating on all those shares.
Jennifer Black, an independent retail analyst, said investors should look at retailers that did "incredibly well" over the season, such as Limited, Urban Outfitters, Nordstrom, J Crew and Lululemon Athletica.
Limited, which owns the Victoria's Secret and Bath & Body Works chains, did a good job offering the right product at the right price, Ms Black said, citing smaller and lower-priced gift baskets at Bath & Body Works for bargain seekers.
She also recommended shares of skater chain Zumiez Inc, which has not had as big a run in 2009 as some other retailers. It also has "a pretty significant presence" in California, which appears to be bottoming out, she said.
Since most retailers have improved margins by cutting costs, moving forward, they will have to use their unique qualities to win over shoppers and investors.
"As I look at 2010, I tend to favour the stocks that have some sort of special product or special environment that gives the consumer a reason to buy," said Needham & Co. analyst Christine Chen.
Urban Outfitters and Guess Inc. are among those offering compelling products and value to their shoppers, said Ms Chen, who has "strong buy" ratings on both.