NEW YORK — Retail stocks, including J.C. Penney Co. and Kohl’s Corp., are poised to rally in the next two months because of anticipated strong October same-store sales boosted by seasonal purchases, Merrill Lynch analyst Daniel Barry wrote in a research note on Monday.

The expected weakness in September same-store sales likely means that October’s comps — sales in stores open at least a year — might come in strong. “There will be pent-up demand, especially for apparel-type products, which could lead to a strong recovery in sales in October,” Barry wrote in his report.

Citing the weather forecasting company Planalytics, Barry wrote that the first frost is forecast to hit early this month, compared with the last week in September in 2003. Last year’s frost increased demand for fall merchandise in that period, making comparisons for the month of September the hardest in 2004. Meanwhile, cooler temperatures in October will likely spur shopping for winter-related merchandise.

The S&P Index, which is made up of restaurant and consumer stocks, hit its highest point, 415.83, since its inception in June 2002. In trading on Monday it rose 1.3 percent from Friday’s close. Its previous high of 413.29 came on June 8. J.C. Penney shares ended the session up 3.3 percent at $36.53 in New York Stock Exchange trading. In the last 52 weeks, the shares are up 49 percent compared with the S&P 500, reflecting the strength of the company’s turnaround. Shares in Kohl’s closed up 2.6 percent at $50 on Monday, but are down 18 percent versus the S&P 500 in the last year. The company has struggled with negative comps, but most analysts speculate its focus on fashion trends will translate into an eventual turnaround success.

Not all analysts share Barry’s optimism for a retail rally. While John Lonski, senior economist at Moody’s Ratings Service, expects to see slight increases in October and November same-store sales, he said a retail stock boost is unlikely unless there is a satisfactory rebound in nonfarm payrolls. The Labor Department releases its September employment report on Friday, with analysts calling for 150,000 nonfarm payrolls to have been added in the month, which would compare with 144,000 in August, but just 32,000 in July.

This story first appeared in the October 5, 2004 issue of WWD. Subscribe Today.

“If we can begin to grow payrolls at a pace that is more indicative of an economic recovery, at least by 200,000 [a month] on average, it might increase the consumer spending outlook by enough to spill over into a noteworthy boost of share prices of retail stocks,” Lonski said in an interview. Otherwise, he expects that retail share prices may wilt during the October-November period.

John Pinto, managing partner at Brightleaf Partners investment partnership, said his firm is positioned for a minor rally in the retail space. “The market is recognizing that the retailers are still very strong in generating a lot of cash, and last year’s holiday was not entirely successful,’’ he said. “People see the potential for outperformance in November and December.”

Barry cited historical trends to back up his theory. Retailing stocks have outperformed the market in October and November by 1.7 percent in the last five years, he said.

“Over the past five years, October is the most attractive month of the year [for retail stock performance] and November is the third most attractive month,” Barry wrote.

In addition, he wrote that the third-quarter reporting season is expected to have upside surprises. He cited inventory levels in “excellent shape” and anticipates earnings estimates to be cut after September’s same-store sales are reported on Thursday, leaving room for some upside.