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Retailing is a very tough business, and retail stocks are very tough to play because of the fickle nature of the customers. Finding a retailer that is in the sweet spot can be extremely rewarding, but finding one that is about to go out of favor can be extremely painful. Today as part of the 2008 investment knowledge series I will visit what I believe are five retailers in great shape for a strong 2008.

Top 5 Retail Stocks for 2008

• Costco Wholesale Corporation (Nasdaq:COST) How can you not pick this company after it has been so consistent and successful year after year? Earnings estimates continue to rise for 2008 and the company continues to keep costs down beautifully. This company also has a terrific reputation among investors and consumers.
• Abercrombie and Fitch (NYSE:ANF) ANF is the one company that operates teen based that has proven itself to be able to make money regardless of the what the new hot trend is. ANF has no long-term debt and a lot of cash on hand so its balance sheet is in good shape. The company has a terrific ROE of 34.9%.
• Kohl's Corporation (NYSE:KSS) Kohl's is currently trading at its lowest level in almost two years. I believe this is a company that has been beaten down to levels that makes it an attractive comeback pick for 2008. It is currently trading at a PEG of just 0.77.
• Nordstrom (NYSE:JWN) Nordstrom has been hit hard of late because of lower than expected growth rates, but this company always comes back. Just about any retailer out there would be jealous of JWN's eye-popping ROE of 45%. The company has a great reputation among high-end consumers who aren't going away anytime soon.
• Best Buy (NYSE:BBY) This electronics behemoth has pushed back several attempts to eat into its leadership position in recent years. CompUSA is now bankrupt, and Circuit city (NYSE:CC) is doing terribly, as companies are finding it to be rough sledding competing against Best Buy. The company has almost $4 per share of cash on hand and trades at reasonable valuation levels.

The outlook on the retail sector in 2008 as a whole obviously depends on almost solely on the consumer. If consumer spending goes in the tank and we have a recession then retail will not be the place to be. If recession is averted, these five stocks are likely to do extremely well next year. As of now I think that the more likely scenario is a slowing of the economy, but not a recession. I would caution investors to not put too much money in the retail sector though, because these are very uncertain economic times. A little retail is good for the portfolio, but too much could be harmful.

What retailers would you have included in this list?

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