BOSTON (TheStreet) -- Consumer-discretionary stocks have risen 66% in the past year, outpacing the S&P 500 Index of the largest U.S. companies by 18 percentage points.
The consumer-discretion sector -- companies that sell goods that people don't really need to live, such as clothes, jewelry and the like -- has jumped 12% this year alone, twice the pace of the S&P 500, as the job market thaws and consumers stir to life.
The retail industry has several smaller names you may not have heard about. They offer excellent opportunities as the economy pulls out of the deepest recession in 80 years.
The following are the top three retail stocks ranked by
model. All have "buy" ratings and a grade of B or better.
: The Buckle sells casual apparel and footwear to young adults. The company operates 408 stores in 41 states. The stock has been a favorite of
model for a long time due to the company's stable financing and profits. The Buckle has no long-term debt and a return on equity of 36.8%, strong by any measure.
The Buckle's stock has risen 34% this year, boosted by fourth-quarter results. Even with the increase, the shares are still attractively valued, carrying a price-to-earnings ratio of 13.4 versus the industry average of 35.4. The Buckle pays a dividend of 2.1%, high for a small company.
( JAS): Jo-Ann Stores deals in fabric and crafts supplies. As unusual as that niche sounds, it has proven to be profitable. Jo-Ann's stock has gained 16% this year, the least of these three picks, but it has outpaced the
Russell 2000 Index's
Jo-Ann is cheap, with a PEG ratio (a gauge of price to growth prospects) of 0.97 and a price-to-earnings ratio of 12.7. The company's return on equity trails some competitors', though it's hard to argue with the stock's increase of 174% in the past year. With several analysts upgrading the stock or initiating coverage at a "buy" rating, it's clear which way the market's opinion is pushing.
: True Religion, which sells jeans through 70 company-operated stores as well as online and through various high-end retailers, is the most edgy of these picks. It's also the most active stock of the bunch, with a 58% return this year. It's surged 147% over 12 months.
With a price-to-earnings ratio of just 12.1, the stock is a bargain. A rock-bottom PEG ratio of 0.47 makes this stock incredibly enticing. Selling high-priced denim hasn't gone out of fashion. True Religion's 27.8% return on equity speaks for itself.
-- Reported by David MacDougall in Boston.
Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.