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8 Top Retail Stocks: Holiday Sales Favorites

NEW YORK (TheStreet) -- If back-to-school provides any insight into the upcoming holiday season, it is poised to be a very merry Christmas for some retailers.

Looking at the traditional back-to-school period, which stretches from July through September, TheStreet found several retailers came in at the top of the class. Given that back-to-school winners are usually indicative of holiday winners, this elite group of retailers is worth noting. "As many investors use fall as a gauge for holiday, we believe interest in the group could be on the rise," UBS analyst Roxanne Meyer, wrote in a note.

Department stores, from both the low-to-high end dominated the list, as the sector has experienced a steady rebound over the past six months. Teen retailers, which are generally a barometer of discretionary spending, also had a strong finish.

The final month of the back-to-school season should have served to ease the fears of those investors who predict a double-dip in consumer spending, says Brean Murray analyst Eric Beder. In September, retailers were up against some of the toughest comparisons of the year, and were still able to post significant gains, a positive sign of the momentum heading into holiday.

But back-to-school came later this year, with shoppers procrastinating until classes started before picking up fall items. Similarly, holiday spending might not kick-off with a big bang on Black Friday, with shoppers waiting until closer to Christmas to find the best deals, says Wall Street Strategies analyst Brian Sozzi.

Back-to-school was also driven by high levels of discounting, particularly in the teen space. Average unit retail was down in the double digits among most of the mall retailers in September, and was noticeably more promotional this year than last year, says Janney Capital Markets analyst Adrienne Tennent.

All of this is largely predicated on the fact that inventory levels are higher this year, as retailers bulked up on merchandise during the first-half of the year following a wave of consumer optimism. But that upbeat sentiment has come and gone, and inventory for the holiday season, which is generally purchased up to nine months in advance, will remain heavy. "Without creative, deep promotions, retailers won't come out on top [this holiday]," Sozzi predicts.

Ahead of the holiday season, it looks like October and November may be soft, as it is becoming evident that consumers will only shop when there is a catalyst. Wet Seal (WTSLA), among other retailers, said while sales were robust in the beginning of September, during peak back-to-school, traffic dropped off once the shopping season ended.

So which retailers will retain this momentum? Read on to see which retailers are most likely to turn their back-to-school success into holiday sales....

Stock quotes in this article: ANF, M, KSS, JWN, SKS, LTD, ROST 

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