What’s in store for retail?

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Retail stocks are almost as risky these days as penny stocks due to a slowdown in consumer spending. In looking for an indicator as to when to jump into this industry, we were surprised to hear experts say now is the time. “The sale on retail shares will be over by the time we start to see signs of an economic recovery,” says senior analyst Joe Magyer of The Motley Fool.

Focus on discount retailers, such as Target (NYSE: TGT; Price: $52.34) and Wal-Mart (NYSE: WMT; Price: $54.14), because “in a recession people are sensitive to how much they spend and therefore will purchase necessities at discounters,” says Chanie Schwartz, president of A Vested Interest Wealth Management. Be more cautious about luxury stores, such as Macy’s (NYSE: M; Price: $23.21) and Nordstrom (NYSE: JWN; Price: $33.29). Magyer expects J.C. Penney (NYSE: JCP; Price: $38.92) to “come to life once consumer spending comes around” but doesn’t see it as a long-term bet. The same goes for Nordstrom. “Nordstrom’s heavy focus on operational improvements and niche positioning probably makes it the best short-run play of this bunch,” he says. With Kohl’s (NYSE: KSS; Price: $42.40) off-mall store strategy increasingly mimicked, Magyer says, “I’d rather shop at Kohl’s than buy its shares.”