Retail forecasts are calling for sales growth during the all-important holiday season to slow compared to 2014, despite lower gas prices, as consumer confidence declined in October.

"We forecast holiday sales growth below last year despite consumers' improved financial health," Morgan Stanley analysts wrote in a note on Thursday. "We see downside risk to estimates through year end and advocate staying selective."

Morgan Stanley forecasted holiday same-store sales -- sales by stores open at least a year -- to rise just 1.2% for chains that sell things like apparel, footwear and accessories, compared to 2.8% growth in 2014. The investment firm noted its forecast calls for the "second softest holiday season since 2008" (excluding J.C. Penney).

For softline stores, three key concerns underpin Morgan Stanley's "very cautious view," including, "a lackluster apparel spending environment; 4Q represents the most difficult sales comparisons of the year; and an unfavorable weather forecast," the report said.

Morgan Stanley predicts that same-store sales at "hardline" chains -- which sell things like electronics, appliances and furniture -- to rise 3% compared to 3.8% last year.

"While 3% comps are healthy on the surface, they are being held back by spending on big ticket durable goods as well as communication services. In addition, the growth will likely be more unevenly distributed than in prior years given increased omni-channel competition," the note said.

Morgan Stanley isn't the only observer that is cautiously looking at the holiday season. The National Retail Federation expects total sales for the November and December season to rise 3.7% to $630 billion, below last year's 4.1% gain. ShopperTrak, which does not include e-commerce sales in its forecasts, estimates sales to rise 2.4%, down from 4.6% growth last year.

Despite the cautious outlook for this year's holiday season, there are several retailers that are best positioned to win a portion of consumers' wallets in the coming weeks. Morgan Stanley points to five retail stocks for investors to own in preparation for the upcoming season. Here's the list, paired with ratings from TheStreet Ratings, for added perspective.

TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

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LB

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1. L Brands Inc. (LB) - Get Report
Industry: Consumer Goods & Services/Apparel Retail
Year-to-date return: 9.4%
Morgan Stanley Rating/Price Target: Overweight/$196
Morgan Stanley Said: LB's superior execution and continued momentum at both (Victoria's Secret and Bath & Body Works) give us confidence in its ability to sustain consistent, strong comp momentum through the holiday season when LB typically earns 50-55% of annual income.

The intimate apparel and beauty categories are not weather sensitive, exhibit little fashion risk, and are less likely to experience irrational promotions, which favors both brands to deliver on sales and earnings expectations. We forecast +2% SSS at VS and BBW and gross margin +40 bps y/y, but see upside to our sales forecast despite the toughest compare since 2Q12 (+6%) given current momentum (3Q15 running +8% QTD). Keeping 2-year trends constant suggests LB could potentially deliver a +4-5% 4Q comp vs. our +2% estimate. Innovative product launches, on-trend offerings, and store expansions featuring full lingerie collections, greater PINK apparel, and VSX sport assortment should drive continued comp momentum.

Additionally, VS will be lapping less than $10M in non-go-forward category sales in the eCommerce channel which should drive an increase in the total sales to comp spread (we estimate +1.5% vs. flat in 1Q and negative in 2Q) and could potentially be even wider if mid-teens core category growth continues (our current estimate is +5%).

TheStreet Said: TheStreet Ratings team rates L BRANDS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate L BRANDS INC (LB) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, revenue growth and expanding profit margins. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 39.30% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, LB should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • L BRANDS INC has improved earnings per share by 7.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, L BRANDS INC increased its bottom line by earning $3.49 versus $3.05 in the prior year. This year, the market expects an improvement in earnings ($3.75 versus $3.49).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 8.0% when compared to the same quarter one year prior, going from $188.00 million to $203.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.8%. Since the same quarter one year prior, revenues slightly increased by 3.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 44.38% is the gross profit margin for L BRANDS INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 7.34% trails the industry average.
  • You can view the full analysis from the report here: LB

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2. Lululemon Athletica Inc. (LULU) - Get Report
Industry: Consumer Goods & Services/Apparel, Accessories & Luxury Goods
Year-to-date return: -12.5%

Morgan Stanley Rating/Price Target: Overweight/$68
Morgan Stanley Said: We expect LULU's sector best top-line momentum to continue this holiday, as we forecast +5% /+12% comp and sales growth.

Several factors support our conviction in LULU, namely: (1) incremental design initiatives, including the pant wall and tank wall relaunch, adding newness and expanding the product assortment; (2) a continuation of men's robust comp growth (+25% YTD), driving a (low-single-digit to mid-single digit) contribution to the total comp; (3) a continuation of solid online sales growth (+28% YTD), driven by strength in traffic and conversion; and (4) despite lapping 4Q14's +8% comp, on a two-year basis comparisons ease ~100-200 bps vs. 1Q15-3Q15.

We acknowledge elevated inventory from West Coast port strikes limits near-term margin visibility. However, the company is gradually improving its supply chain and this combined with recent product design enhancements could deliver upside to our +5% comp/+12% sales holiday forecast.

TheStreet Said: TheStreet Ratings team rates LULULEMON ATHLETICA INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

TheStreet Recommends

We rate LULULEMON ATHLETICA INC (LULU) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LULU's revenue growth has slightly outpaced the industry average of 14.5%. Since the same quarter one year prior, revenues rose by 15.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • LULU has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.74, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for LULULEMON ATHLETICA INC is rather high; currently it is at 50.49%. Regardless of LULU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 10.52% trails the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Textiles, Apparel & Luxury Goods industry average, but is greater than that of the S&P 500. The net income has decreased by 2.2% when compared to the same quarter one year ago, dropping from $48.75 million to $47.67 million.
  • Net operating cash flow has significantly decreased to $11.22 million or 78.83% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • You can view the full analysis from the report here: LULU

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3. Ross Stores Inc. (ROST) - Get Report
Industry: Consumer Goods & Services/Apparel Retail
Year-to-date return: 6.5%
Morgan Stanley Rating/Price Target: Overweight/$54
Morgan Stanley Said: We remain bullish on the Off-Price sector, preferring ROST (OW) to BURL (OW) and TJX (EW) this Holiday season.

For ROST, we think management was prudent to provide conservative 2H15 guidance in August (~1%-2% comps vs. 1H15 +4.5%). As a result, the Street's 4Q15 +1.4% comp forecast (vs. MS +1.0%) appears achievable, even against 4Q14's impressive +6% comp. While we begin to lap several consumer tailwinds in 4Q15, ROST is likely best positioned to benefit from the further step down in gas prices, with its target consumer mainly from the low-middle income demographic. Additionally, packaway inventory increased 12% from 4Q15-

2Q15, potentially providing a boost to sales, and more importantly, could help deliver upside to our 4Q15 26.6% gross margin (-70 bps y/y).

Over the past five holiday periods ROST has delivered solid earnings results, leading to an average share price increase of ~1.2% following 4Q10-4Q14 earnings. The company's consistent execution and disciplined expense management provides us with confidence it can deliver (high-single-digit to low double digit) earnings growth (long term), in-line to above TJX, albeit while trading at an attractive ~1-2x discount to its peer.

TheStreet Said: TheStreet Ratings team rates ROSS STORES INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

We rate ROSS STORES INC (ROST) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, revenue growth and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 28.56% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ROST should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • ROSS STORES INC has improved earnings per share by 10.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ROSS STORES INC increased its bottom line by earning $2.21 versus $1.94 in the prior year. This year, the market expects an improvement in earnings ($2.45 versus $2.21).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 8.0% when compared to the same quarter one year prior, going from $239.56 million to $258.64 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.8%. Since the same quarter one year prior, revenues slightly increased by 8.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Specialty Retail industry and the overall market, ROSS STORES INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • You can view the full analysis from the report here: ROST

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4. Best Buy Co. Inc. (BBY) - Get Report
Industry: Consumer Goods & Services/Computer & Electronics Retail
Year-to-date return: -11.6%
Morgan Stanley Rating/Price Target: Overweight/$40
Morgan Stanley Said: Despite the recent deceleration in the consumer electronics category in Q3, we see upside potential to Q4 comps and EPS. The Street currently expects comps of 1.0% for Q4 and we estimate there could be up to a point of upside. BBY's recent price investments, premium product assortment, and the opportunity related to reverse logistics for additional cost take-out should allow BBY to maintain gross margins at 21.3%YoY. On a stronger top-line, flat gross margins should be enough for BBY to meet numbers in Q4.

There are numerous product drivers to make for another successful holiday period for BBY, in our view. The combination of 4K TVs, mobile phones, appliances, and the rapid ascent of wearables should help BBY improve upon last year's acceleration.

TheStreet Said: TheStreet Ratings team rates BEST BUY CO INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate BEST BUY CO INC (BBY) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, revenue growth, reasonable valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 12.3% when compared to the same quarter one year prior, going from $146.00 million to $164.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.8%. Since the same quarter one year prior, revenues slightly increased by 0.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Net operating cash flow has significantly increased by 77.65% to $318.00 million when compared to the same quarter last year. In addition, BEST BUY CO INC has also vastly surpassed the industry average cash flow growth rate of -10.77%.
  • You can view the full analysis from the report here: BBY

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5. Nike Inc. (NKE) - Get Report
Industry: Consumer Goods & Services/Footwear
Year-to-date return: 36.4%
Morgan Stanley Rating/Price Target: Overweight/$131
Morgan Stanley Said: NKE is our top pick into holiday. Key factors driving Nike should be reconfirmed during the holiday season.

Strong futures growth acceleration (17% from 13%), particularly in North America (15% from 13%) underscores the brand's momentum in wholesale. 1Q's 46% eCommerce growth and 7% store comps shows Nike's online initiatives (to $7B from $1.2B by 2020) are bearing fruit, which is also key into holiday. Historically Nike has been most likely to outperform the market within our group during CY4Q at 62% of the time.

TheStreet Said: TheStreet Ratings team rates NIKE INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

We rate NIKE INC (NKE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 47.35% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, NKE should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • NIKE INC has improved earnings per share by 22.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, NIKE INC increased its bottom line by earning $3.70 versus $2.98 in the prior year. This year, the market expects an improvement in earnings ($4.31 versus $3.70).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Textiles, Apparel & Luxury Goods industry average. The net income increased by 22.6% when compared to the same quarter one year prior, going from $962.00 million to $1,179.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 14.5%. Since the same quarter one year prior, revenues slightly increased by 5.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • NKE's debt-to-equity ratio is very low at 0.09 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, NKE has a quick ratio of 1.69, which demonstrates the ability of the company to cover short-term liquidity needs.
  • You can view the full analysis from the report here: NKE