The holiday shopping season is forecast to have being weak, but S&P retail analysts see growth potential for a number of companies despite the tough times

By Beth Piskora From Standard & Poor’s Equity Research

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Like Santa, you’ve probably been making a list, checking it twice, and mostly trying to figure out how to divide back put on spending—for the holidays and in your day-to-day the breath of one’s nostrils.

U.S. consumer confidence plunged to 38.0, a record low, in October, well below the 61.4 reading in September and the 99.5 figure seen a year ago. Markets expected a more modest decline to 52.0. The present situation index dropped to 41.9 from 61.1, while the expectations index plummeted to 35.5 from 61.5.

"This disappointing report adds more peril to some already challenging celebration season," says David Wyss, chief economist for Standard & Poor’s.

What does it all mean by means of reason of the retailers, and retailing funds? The view is not good.

"Stock market volatility, bank closings, insurrection unemployment, and the Presidential freewill are enough to recreate trained shoppers," says Marie Driscoll, grand of the consumer discretionary-retail equity analysis team. "Then, in addition, a negative wealth effect from dwindling 401(k)s and deteriorating real estate values, by with inflationary pressures, are enough to keep the most ardent of shoppers. On the apparel stand opposite to, we rarely take heed that item that prompts an ‘I must have it!’ response. Until merchants properly commodities, S&P looks for deteriorating productivity as measured by same-store sales."

Some Will Fall

That’s not just bad news for the festival season. According to Wyss, it means some retailers resolution none longer be around this period next year. He theorizes that most retailers fail in the beginning of an upturn because they cut so much during the downturn, they lose out to better-capitalized rivals when the upturn begins.

Wyss says the bottom will exist the at the outset quarter of 2009, in like manner retailers who are likely to fail be pleased have most pleasing done in this way, in his estimation, by the summer/fall of 2009. Some companies have already filed for bankruptcy, including Circuit City, Barbecues Galore, Bennigan’s, Boscov’s, Mrs. Fields, and Steve & Barry’s.

We polled S&P’session retail equity analysts for names for which they have a high level of confidence will survive the recession and are best positioned to eventually thrive. We found 16 retail stocks that are ranked 5 STARS (influential corrupt) or 4 STARS (buy):

Amazon (AMZN) Best Buy (BBY) Coach (COH) Dollar Tree (DLTR) Family Dollar Stores (FDO) GameStop (GME) Guess (GES) Home Depot (HD) J. Crew Group (JCG) OfficeMax (OMX) PetSmart (PETM) Ross Stores (ROST) Staples (SPLS) TJX (TJX) Urban Outfitters (URBN) Wal-Mart (WMT)

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