Consumers searching for retail bargains might find the best buys on Wall Street, rather than at the local mall. With the Standard & Poor's 500-stock index up almost 29%, many stocks look pricey. But the broad S&P retail-stores index is up just 10%, down from 17% earlier this year. And while the index has regained some strength recently, analysts say there are still a few good buys.

Investing in retailers today takes chutzpah. As Martin J. Whitman, who runs the $295 million Third Avenue Value Fund, says: "Boy, does the retailing industry stink. You really have to pick your spots."

Whitman's spot: Charming Shoppes Inc., a women's-apparel merchant. Part of the stock's appeal is the lack of a downside, he says. After sinking to 2 in October, the stock now trades around 3. Whitman notes that Charming is well-financed, well-located, and has a promising new merchandising manager. While the company has posted losses in recent quarters, "they could go back to earning 70 cents to $1 per share," says Whitman. "I'm willing to own it for five years to see if they can do it."

GRIM CHRISTMAS. There are lower-risk ways to buy retail. "There's a lot of shakeout in the industry, even bankruptcies among the discount stores. So keep an eye on the strong companies," says Gail Bardin, co-manager of Hotchkis & Wiley Equity-Income Fund. She says J.C. Penney Co. and May Department Stores Co. "are financially solid and have good management and good dividend yields." The risk: "It could be dead money for a while if consumers are overleveraged and Christmas is dead."

Merrill Lynch & Co. analyst Daniel Barry also sees good buys. He likes "growth retailers" such as department store Nordstrom Inc. and discounter Wal-Mart Stores Inc. At price-earnings ratios of 17.4 and 18.7, respectively, "Nordstrom is at one of its lowest multiples in the past 10 years, and so is Wal-Mart," he says.

With Christmas expected to be slow, focusing on companies that can boost earnings without strong sales may pay off. Salomon Brothers Inc. analyst Jeffrey Feiner says May and Sears, Roebuck & Co. can increase earnings by reducing expenses tied to selling, administration, and interest rates. His 12-to-18-month forecasts: 54 for May, up 26%; and 45 for Sears, up 16%.

Many retail stocks deserve low valuations. But others are being oversold. For the patient investor, retail may yield bargains.

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