Retail Stocks: Poised to Pop

Say what you will, consumers aren't listening...and that's a good thing.

A couple months ago stocks dropped off of a cliff as investors began fretting over the economy heading back into a recession. Citing slower growth in coming quarters, a stagnant labor market, and any number of data points that would back them up.

News from the European Union also has the market in a hammerlock. Headlines alone have sparked 3% swings in both directions. That has many on edge and quick to sell assets.

Falling on Deaf Ears

Now, I'm not saying those faceless consumers, i.e. you and me, don't care about the possibility of tougher times ahead, but they certainly aren't acting like they do.

Surveys are showing that those issues do weigh on our minds. Last week the Thomson Reuters/University of Michigan consumer sentiment reading slipped, unexpectedly, falling short of analyst expectations.

But, that didn't seem the change anyone's spending habits. Retail sales last month were up 1.1%, about 40 basis points higher than expected. So, if consumers are worried, maybe they are just coping by treating themselves.

Cha Ching!

Who knows the real reasons for the disconnect, but it does mean we could see a great quarter for retailers. The industry was hit pretty hard, because most assumed discretionary spending would be reined in.

Maybe some have, but the data isn't showing that. So, here are a few retailers that could have a strong finish to 2011.

Tractor Supply Co (TSCO - Analyst Report) is no stranger to most, constantly setting new all-time highs over the past couple years. The company focuses on rural markets in the U.S., offering a wide variety of products from home decor and clothing to truck and farm equipment.

Just yesterday, the company beat Wall Street's forecast for sales and earnings, then went on to raise the outlook for the rest of the year. The low end of TSCO's sales and earnings guidance is now above the current consensus for both figures. Same store sales jumped almost 12%. EPS came in at $0.58, up 35% and 6 cents above the Zacks Consensus Estimate.

Shares jumped about 8% on the news.

Select Comfort (SCSS - Snapshot Report) probably didn't do that well, I mean who is mattress shopping in a shaky economy?

Apparently, a lot of people. And these aren't your run-of-the-mill mattresses; the company offers its signature "Sleep Number" beds that offer adjustable firmness on each side and come with a pretty hefty price tag.

SCSS also came in well ahead of expectations yesterday, with EPS of $0.31 compared to the $0.27 that analysts were looking for. The company also went on to raise guidance and is seeing double-digit revenue growth.

The stock soared 20% on the earnings surprise.

Looking Ahead

Those are just 2 examples and they already posted surprises. However, there are plenty of retailer and discretionary stocks on deck if you're looking to get in ahead of a report.

Dick's Sporting Goods, Inc (DKS - Snapshot Report) is not coming up for a few weeks, but could benefit from surprising consumer spending trends. Shares are a Zacks #1 Rank (Strong Buy).

Maybe casinos are doing better than expected. Plenty are set to report in the next week or 2, including Ameristar Casinos (ASCA - Snapshot Report) which is due up on Nov 3. Estimates are rising into the number, which is a great sign. Pinnacle Entertainment (PNK - Snapshot Report) is also seeing upward earnings revisions ahead of its earnings release next week.

Follow the Money

Consumers are spending, despite their economic worries. So, if sales have been above expectations recently, that means there should be plenty of earnings surprises for companies that rely on consumer spending. There are a few examples above, but hundreds more are out there. Roll up your sleeves and dig in.

Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service

Read the full analyst report on ASCA

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Read the full analyst report on TSCO

Read the full analyst report on DKS