How to Pick Winning Retail Stocks, Pt. 2

I may even listen to the company's latest conference call. If it's not earnings season, I can often find a podcast on the company's investor relations Web site. Listening to the quarterly conference call is a good way not only to review and get new information but also to get a feeling for the key managers and their style. Sometimes transcripts are also available, which is nice if you like to make notes.

Check SEC Filings

By now you know your retail stock candidates pretty well. There's still one more level of research to dig into: SEC filings. You can find these on the SEC's Web site, often on the company's Investor Relations Web site or even through Yahoo! Finance.

Start with the 10-K, an annual filing loaded with excellent information that can include the company's history, retail platform and growth, as well as its outlook for the coming year, strategy, competitors and management. Because of its depth, the 10-K is usually better than the company's Annual Report and quarterly filings.

Here's what I'm looking for:

A company with a solid history that's weathered a number of cycles in the retail business. That proves it can react to changing retail demand environments over a significant stretch. As with long-term growth rates, a good rule of thumb is five years or more.

A good retail platform that shows consistent growth. You're looking for consistent store growth and solid same-store sales over the long term.

New store concepts. Retail concepts are cyclical: They grow, mature and decline. Sure, it can take a long time for that to happen, but you want to see retailers try new store concepts. That way they can leverage their existing retail prowess and find a new niche that could deliver faster, newer growth down the road. On the other hand, some concepts are going to be duds. Don't freak out. Just make sure management isn't expanding the new concept until it has the kinks worked out.