NEW YORK — Although holiday sales may not be as robust as last year, equity analysts say several retail offerings would make good stocking stuffers. But plan ahead, because now is the time to buy.

Consumer stocks have moved lower over the past two-and-a-half months due partially to fears about high gas and energy prices (spurred by Hurricanes Rita and Katrina), but the lower prices create an attractive entry point for several stocks with strong long-term fundamentals, according to analysts. And while the S&P Retail Index is down 11 percent since late July, it’s up 5 percent over this time last year.

Retailing stocks usually outperform the broader market during the upcoming holiday fourth quarter. Robert Buchanan of A.G. Edwards & Sons Inc. expects average earnings to rise 13 percent for retailers during the quarter, versus an estimated 7 percent average earnings rise for the firms that make up the S&P 500.

In the spirit of Warren Buffett-style investing — which urges buying and holding underpriced securities for the long term — Wall Street is recommending a handful of stocks in the three major retail sectors. These include specialty retailers Abercrombie & Fitch Co. and Gap Inc., discounter Wal-Mart Stores Inc. and luxury department store chain Nordstrom Inc.

Analysts like Abercrombie & Fitch because its three main brands — Abercrombie, Hollister and Ruehl — are expected to garner strong comps through the holiday season, in part because the retailer is seen as a major gift-giving destination. At about $50, the shares are trading at only around 13 times the full-year 2006 earnings-per-share consensus estimate of $3.88, which shows that the shares have room to grow. Indeed, about three months ago the shares hit a 52-week intraday high of $74.10.

Senior analyst Jeffrey Klinefelter of Piper Jaffray has a $78 price target on shares of Abercrombie. He wrote in a recent research report that the company’s shares could eventually trade at 20 times his 2006 EPS estimate of $3.90 due to expected “high-single-digit square-footage growth, a mid- to high-single digit comp and modest incremental store-distribution expense leverage over the next several quarters.”

Gap Inc., which has underperformed on a comp-store sales basis over the past year, is trading around $16. This is almost 12 times estimated full-year 2006 EPS of $1.40. So the company’s stock is cheap, and ripe for the picking, analysts say. The shares hit a 52-week intraday low of $15.90 on Oct. 19, and are trading near a two-year low.

This story first appeared in the October 24, 2005 issue of WWD. Subscribe Today.

However, patience would be the key to holding shares of Gap, analyst Lauren Levitan of SG Cowen & Co. cautioned in a recent report. She thinks sales at Gap will pick up in the second half of 2006 and cited the firm’s “strong foundation,” including “solid cash flow generation and ongoing cash distribution to shareholders.”

Brent Wilsey, president of Wilsey Asset Management in San Diego,  admitted investors likely won’t see Gap’s stock move much in the short term, but he said the stock is solid with a low debt-to-equity ratio. Wilsey said the shares could reach $20 to $25 over the next two to three years.

“Investors are too impatient,” Wilsey said in a recent interview.

The tail end of 2005 is shaping up as a good time to buy shares of Wal-Mart Stores Inc. At about $45, the stock is trading near a five-year low, but at only around 15 times expected 2006 EPS of $3. Wilsey is bullish on Wal-Mart, saying it’s important to note that the retailer’s revenues have been growing 10 percent annually.

Morningstar analyst Kim Picciola agreed with Wilsey. “Wal-Mart is a dominant force in retailing. Its massive scale improves operating leverage and leverage over suppliers,” she said on a late September conference call. She sees it being a leading retailer in the next five years.

In the department store realm,  Nordstrom has consistently been cited by Wall Street as a stock to buy. Nordstrom is expected to continue to grow its store base. Nordstrom has also struck a chord with teens, according to a recent Piper Jaffray survey.

For about $33.50, shares of Nordstrom are trading at about 16 times expected 2006 EPS of $2.12. Klinefelter said that price is undervalued and thinks the stock could eventually reach $42 a share.

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