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Stock Analyst Update

Stick to Retail Industry Leaders

These stocks' compelling valuations outweigh near-term risks.

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What Happened?
Wednesday night and Thursday morning, a slew of retailers reported sales results for the month of November. American Eagle (AEOS) reported comparable-store sales, or sales at stores open more than a year, up 13.4% for the month and total sales up 33.7%. Others reporting included Kohl's (KSS), with comparable and overall sales up 11.2% and 30.9%, respectively, Target (TGT) (5.4% and 10.8%), Wal-Mart (WMT) (4.4% and 9.4%), Kmart (KM) (3.3% and 2.2%), J.C. Penney (JCP) (0.7% and 1.6%), Dollar General (DG) (2.0% and 16.3%), Gap (GPS) (-1% and +20%), Claire's (CLE) (-3% and +21%), and Abercrombie & Fitch (ANF) (-8% and +19%).

What It Means for Investors
We continue to recommend that investors stick to industry leaders. We especially like those companies near their 52-week lows because of industry-specific, rather than company-specific, problems. Retailers in this category include Target, Home Depot (HD), Wal-Mart, Best Buy (BBY), and Limited (LTD). Although there certainly are near-term risks that could cause these stocks fall further, investors with a longer time horizon are now being presented with some compelling valuations.

Mark Sellers does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.