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At the end of the second quarter of 2013, I reviewed a lot of big themes. One stuck out to me as both a danger and an opportunity. Retailers were telling us that they saw the second half of the year was going to be challenging.

One of the keywords that tell what is going to happen in the future is the word "challenging" - and that means it’s time to sell. At least it is in the short run.

Talking It Down

It saying that the second half was a challenging period, they noted that the potential for government shutdown was high and that the consumer may be tapped out from expensive oil prices. Both of those ideas led to Wall Street analysts lowering numbers across the board as expectations fell.

One of those ideas has more or less played out, with about a two week shutdown and eventual game of kick the can getting played. The other idea has seen a fairly large decrease in oil prices. Both situations point to a positive impact on consumer spending when the initial thought was that the consumer was tapped out.

Recent Strong Reports

Macy's (M) just reported a solid quarter and that saw the stock jump by about 10% intraday. Other bigger retailers like Best Buy (BBY) and even JC Penny (JCP) has provided good data points as well with strong same store sales numbers.

In the coming weeks we will see several other big box and mall anchor stores reporting earnings. I want to focus on two names that I like that both have Zacks Ranks of #2 (Buy). That strong rank tells me that analysts have been raising, not lowering earnings estimates of late. his helps me know that the experts that follow these stories closely are confident about these names are earnings in retailers heat up.

Five Below (FIVE - Snapshot Report) ) isn't a dollar store, it’s more like a $5 store. So there isn't a focus on those $0.60 and $0.70 items that are being sold for $1. Instead, this retailer is looking at larger average ticket prices via items that are not likely to be found at the dollar stores.

FIVE has a great history of beating the number. Over the last five quarters, they have a 100% rate of posting a positive earnings surprise. What's more, the company has also beat the top line number each instance that there was a Zacks Consensus Revenue number.

Over the last three months, the Zacks Consensus Estimate for 2013 has seen a number of upward revisions. Starting at $0.69 in August, an increase hit in September taking the number to $0.72. Another penny increase brings us to the current level of $0.73.

The 2014 estimates look even better. The moved from $0.93 in August to $0.97 in September and another penny higher in October. More recently, the estimate has ticked higher by another cent to the current level of $0.99. That gives the stock an implied growth rate of more than 35%.

The company is expected to report earnings on November 25.

The price and consensus chart above shows that estimates have been driving the stock higher.

Conn's (CONN - Snapshot Report) is another Zacks Rank #2 (Buy) stock that I like given the improving climate for retailers.

The recent strong news out of Best Buy is something that should also be seen at Conn's stores as they are core competitors. The stock has also seen a fair amount of institutional interest over the last few months as well.

CONN has had a good history of beating the number, with four beats in the last six reports. The other two reports were an inline report and a big miss. That big miss came last quarter and following the report the stock fell by 22%.

The reason behind the miss was a dramatic increase in the company's credit profile as a glitch in its software didn't remind its collections department to call customers that were either due or past due on payments. That issue is being addressed or has been according to many recent research reports.

The company is expected to report earnings again the first week of December.

Summary

Talking down the markets expectations for the second half has created a very low bar for retailers to jump over. Sticking with stocks that have a high Zacks Rank give you the best chance for success as you see the industry fundamentals improve.

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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy.

Follow Brian Bolan on twitter at @BBolan1

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