Is this the time to invest in retail stocks?

Certain retailers have seen healthy share price spikes after reporting solid quarterly results. Taking advantage of the momentum heading into holiday shopping could prove to be a prudent move. However, forecasts for this year’s gift buying are not the most optimistic as the country continues to claw its way out of a recession. In fact, October’s consumer sentiment report was down from September.

Yet, some retailers are seeing legitimate growth based on strong fundamentals, and not all economic reports are signaling doom and gloom. The latest GDP figure showed growth 3.5%, exceeding expectations of 3% expansion.

Even more promising is the fact that retail sales advanced for the second consecutive month in October after declining for more than a year. The International Council of Shopping Centers-Goldman Sachs tally report showed the retail industry climbing 2% in October.

Liking the recent momentum in certain retailers but being aware that the industry is somewhat of a wildcard, I used the Research Wizard to search for retail plays with strong fundamentals that include projected growth. In other words, I looked for retail stocks that recently reported strong results, are experiencing upward momentum and whose fundamentals point to outperformance even in the face of weaker holiday shopping season. These are stocks that are poised to continue trading higher after recently posting upbeat results and are good names to own over the long-term.

4 Solid Retail Plays

The TJX Companies (TJX) is a discount retailer, selling apparel and home fashions worldwide. The Company operates 882 T.J. Maxx, 811 Marshalls, 323 HomeGoods, and 141 A.J. Wright stores in the United States. In Canada, The TJX Companies operates 203 Winners, 75 HomeSense and 3 STYLESENSE stores, and in Europe, 243 T.K. Maxx and 8 HomeSense stores.

The company just posted stellar sales for the month of October. Sales of $1.7 billion came in 15% ahead of the year-prior total. Comparable store sales jumped 10% year-over-year.

The company recently upped its earnings guidance. For the fiscal year, TJX sees earnings coming in between $2.46 – $2.54 per share. Analysts polled by Zacks are currently calling for earnings of $2.58 per share, an increase from last month’s $2.41.

Earnings per share are expected to grow 13% over the next 3 to 5 years.

TJX Companies is scheduled to announce earnings for the third quarter on November 17.

TJX stacks up well against the market, outperforming the major averages over the past year and over the short-term.

TJX’s return on equity (ROE) of 40% more than doubles the industry average of 18%. The company’s net profit margin of 5% tops the industry average of 3%. The Growth and Income pick also offers an industry-leading dividend yield of 1.3%. It’s trading with an attractive forward P/E of 15.

Nordstrom (JWN), a fashion specialty retailer, operates 179 stores located in 28 states. The company was founded in 1901 as a shoe store in Seattle. Today, Nordstrom runs 112 full-line stores, 64 Nordstrom Racks, 2 Jeffrey boutiques and 1 clearance store. In addition, Nordstrom serves customers through its online presence at http://www.nordstrom.com and through its catalogs.

The company just announced October retail sales of $607 million, a 14.8% leap from last year’s $529 million. Same-store sales were up 6.5% year-over-year.

Shares of JWN have outpaced the S&P 500 by more than 80% over the past year. During the last 3 months, JWN more than tripled the S&P’s 5% return.

Analysts are bullish, lifting the full-year Zacks Consensus Estimate from $1.59 per share to $1.69 over the past month. The most accurate projection is more bullish at $1.72.

For the following year, the Zacks Consensus Estimate of $2.01 per share was increased from last month’s $1.84. The most accurate estimate is even higher at $2.06.

Second-quarter forecasts of 35 cents per share climbed from 30 cents over the past month.

Results for the third quarter are scheduled for release on November 12.

The company boasts a return on equity (ROE) of 25%, squashing the industry average of 7%. Nordstrom’s net profit margin of 4% tops the industry average of 1.4%. The Growth and Income pick pays an industry-leading dividend yield of 2%.

Gap Inc. (GPS) is a global specialty retailer that sells clothing, accessories and personal care products for men, women, children and babies under the Gap, Old Navy, Banana Republic, Piperlime and Athleta brands. The company operates stores in the United States, Canada, the United Kingdom, France, Ireland and Japan.

The company saw net sales of $1.14 billion in October, a 5% increase year-over-year. Comparable store sales climbed 4% year-over-year.

Analysts polled by Zacks are bullish on Gap. The current full year forecast of $1.42 per share is up 5 cents over the past month.

For 2010, the Zacks Consensus Estimate of $1.55 per share compares to last month’s $1.48.

Gap boasts an impeccable record of exceeding earnings projections. Dating back to January 2005, the company topped the Zacks Consensus every time with the exception of 1 match.

Shares are trading with a forward P/E of 16%. Gap has a solid balance sheet, showing no debt. The company’s return on equity (ROE) of 21% triples the industry average of 7%. Its net profit margin of 7% eclipses the industry average of 1%. Gap also offers an industry-leading dividend yield of 1.6%.

Shares, which are near a 52-week high, climbed higher after delivering a stellar second quarter in mid-August, outperforming the market by about 10%. For the past year, GPS is more than 50% ahead of the market.

Third-quarter results will be announced on November 19.

Casey’s General Stores, Inc. (CASY), together with its subsidiaries, operate convenience stores under the Casey’s General Stores name in the Midwest states.

The company announced fiscal first-quarter results in early September. Earnings of 87 cents per share, exceeded the Zacks Consensus Estimate by 45% and topped the year-prior total. During the past 4 consecutive quarters, Casey’s delivered an average upside earnings surprise of 17.5%.

Shares of CASY spiked on the strong quarter, beating the market by more than 10% over the past 3 months.

The company also declared a dividend of $0.085 per share, which translates into an industry-leading yield of 1%. The dividend was paid out November 16.

The company is seeing higher Zacks Consensus Estimates and a share price surge after reporting. For the year ending April 2010, forecasts of $2.21 per share are up from the 2 months-ago level of $1.96. The most accurate Zacks Consensus Estimate is more bullish at $2.25 per share.

The Zacks #1 Rank (Strong Buy) company offers a decent valuation as evidenced its forward P/E of 14. CASY’s earnings per share are projected to grow 9% over the next 3 to 5 years.

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