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Which Three Retail Stocks Are Positioned for Big Gains?


Consumer austerity isn't hitting all retailers equally. Amazon, eBay, and Home Depot are poised to benefit as Americans open their wallets.

There's an old saying on Wall Street that investors should never bet against the US consumer. For decades, that was good advice as bouncebacks in consumer spending helped power the US economy out of most post-war downturns.

However, that truism was upended in the wake of the housing bust and financial crisis of 2007-2009. A toxic mix of weak economic growth, paltry gains in personal income, and reduced access to credit prompted consumers to save more and focus on paying down debts rather than spending.

The good news is that this era of consumer austerity isn't hitting all retailers and Americans are increasingly in a buying mood (see the chart below).

Sales momentum at some of the largest US retailers was positive through the late summer "Back to School" season. The average North American retailer tracked by Bloomberg reported that same-store sales increased more than 6.2 percent in August, the fastest pace so far this year. The resurgence was broad-based, with solid gains in apparel, home goods, discount chains, and department stores. These trends bode well for the all-important holiday-spending season.

And while overall retail sales have been weak, e-commerce remains a growth market with online sales growing from under 1% of total US retail sales in late 1999 to more than 5% by the middle of 2012 (see the chart below). Here's a look at three stocks exposed to markets enjoying particularly strong consumer spending. (NASDAQ:AMZN) is best known as an online retailer of books, a business it pioneered in 1995. The company is now the world's largest online retailer, selling digital and print media, electronics, apparel, and myriad other categories of goods.

Amazon has been a disruptive force in the retailing industry and it's now riding the growing popularity of ecommerce. The 2011 bankruptcy of Borders Books, once one of the largest and most respected booksellers in the US, largely stemmed from the fact that no brick-and-mortar store can rival Amazon's inventory of titles.

Amazon's growing selection of electronics goods offered at discounted prices has represented a serious competitive threat for once-dominant electronics retailer Best Buy (NYSE:BBY) over the past few years. Best Buy has been forced to match Amazon's prices to propel sales and the result has been weakening profitability and margins.

Increasingly, Amazon is becoming the dominant e-commerce destination site on the Web. The share of Amazon's sales driven by search engines such as Google (NASDAQ:GOOG) has actually declined in recent quarters, a sign that consumers are searching for items directly on Amazon's site and a testament to the power of its brand.
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