Retail earnings have been a mixed bag as consumers become more discriminating. Retail stock investors might want to follow suit.
In the second quarter, Americans were willing to spend money on big-ticket items but were more reluctant to make smaller, discretionary purchases.
"You're seeing big comps from retailers that serve and sell items into the home," said Piper Jaffray analyst Peter Keith said. "Clearly, there's a shift right now on where consumers want to spend money, and it's on some of the bigger ticket purchases."
He pointed out that while second-quarter sales of televisions at Best Buy were flat with a year earlier, sales of appliances increased over 14 percent. Lowe's, meanwhile, said its beating expectations was driven by stronger appliance sales.
Remodeling picking up
Best Buy, Home Depot and Lowe's are all benefiting from the rebound in the housing market and a greater willingness to remodel. And there are signs that the resurgence can continue.
Home Depot provided a conservative outlook for the second half, but UBS analyst Michael Lasser thinks the company is just being prudent.
"They told us sales in August are very brisk, and we think that continues into the back half" of the year, he said.
Rising home prices are key to keeping Americans spending at the home improvement retailers.
"If people believe their homes are good investments, they'll invest in the home," Laura Champine of Canaccord Genuity told CNBC. "Some of those kitchens and baths that were replaced in 2005-06 are starting to look older. And as long home prices head up, we feel good about remodelings."
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But while business trends are strong, the stocks of both Lowe's and Home Depot are looking a little pricey after their run-up this year. Shares are up over 30 percent for the former and about 20 percent for the latter.
Budd Bugatch of Raymond James said valuations are just too rich to recommend either.
"These are world-class corporations," he said. "We would like to recommend the stocks but only do so when there is more upside."
Putting off small purchases
MKM Partners analyst Patrick McKeever characterized consumers as "skittish" but said Americans have "more capacity to spend than they did a year ago."
Looking at the earnings from the big box discount retailers and teen apparel retailers, it appears "skittish" consumers are putting off more discretionary purchases even as they splash out on a new washing machine.
Target posted a 1.2 percent increase in U.S. same-store sales. Though that was disappointing relative to expectations of 2 percent to 3 percent, it was far better than the 0.3 percent decrease at Wal-Mart, McKeever said.
In a note, Susquehanna analyst Bob Summers wrote, "The midrange-to-low-end consumer appears under incremental pressure based on Wal-Mart comments/results ... resulting in broad-based sales issues, and we believe the overhang will persist."
Summers sees the potential for a soft back-to-school sales. Combined with a shorter holiday shopping season, he said, weak sales could persist until the end of the year.
Given those concerns and the companies' current valuations, he downgraded both Wal-Mart and Target to neutral.
Not all analysts are ready to give up on the big-box discounters, however. McKeever expects Target shares to move higher from here given its strong position in the U.S. and optimism about Canada.
(Read more: Wal-Mart outlook reveals a tale of two consumers)
Valuations become an issue
In general, consumer discretionary stocks look expensive relative to other sectors, and Bank of America Merrill Lynch strategists suggest investors tread carefully.
"Consumer discretionary has historically rewarded stock-picking more than other sectors, and we suggest that investors focus on several themes within the sector: beneficiaries of home renovation, business spending, higher-end consumption and improving global consumption," the strategists wrote in a note.
One investor suggested focusing on strong brands.
"In this slower growth environment, we do tend to look for specialty retailers that have very strong brands and have been able to continue to drive traffic and comps," said Lori Wachs, co-founder of Cross Ledge Investments. She pointed to companies such as Urban Outfitters and Michael Kors.
Investors may also want to look beyond the big home improvement retailers to smaller names that fit the home remodeling theme but at a cheaper valuation.
Canaccord Genuity's Champine likes Lumber Liquidators. "They have a new store reset that we think will pay off over several years," she said.
Piper Jaffray makes a market in Best Buy securities.