It’s not as gloomy as you think for retail
Wall Street's retail analysts are adjusting their 2014 forecasts, and after last year's curveballs, it shouldn't be a surprise that many use qualifiers like "conservative" and "cautious."
Let's face it, 2013 was a year many retailers are happy to put in the past.
Although home values and equity markets rose and gas prices fell, consumers saw stagnant wage growth, and confidence declined. The government's payroll tax increase at the start of 2013 and its shutdown in the fall both put a dent in consumer spending.
Teen retailers like Abercrombie & Fitch and Aeropostale fell out of favor with consumers and investors. J.C. Penney, Lululemon and Toys R Us saw big management changes. Canadian Hudson's Bay bought Saks, and brought in an entire new management team. Wal-Mart Stores dealt with continued labor-related protests. Target had its point-of-sale systems compromised at the worst possible time.
(Read more: Customers paying the price after Target breach)
Best Buy's "Renew Blue" turnaround plan took hold and resonated with shoppers and Wall Street and led to an impressive 238 percent stock gain last year.
Michael Kors continued its enviable sales increases, and was rewarded by investors who bid up its shares nearly 60 percent in 2013.
Ready for a better economy?
With hopes for a better economy ahead, Jefferies' retail team recommends investors focus on retailers that have operations nimble enough to leverage improving economic conditions, and that also have low stock valuations. Top picks that meet these conditions are Urban Outfitters, American Eagle Outfitters, and Deckers, Jefferies said.
(Read more: Warnings on storm price gougers)
FBR & Co. also likes Urban Outfitters, citing its strength in operating online and in traditional retail stores as well as the potential for reduced operational costs and the retailer's presence in Europe.
FBR expects the euro zone economies to improve and has advised clients to watch apparel retailers with exposure to the region. Beyond Urban Outfitters, FBR's picks include Express, Carter's and Children's Place.
UBS is a sports fan
UBS retail industry analyst Roxanne Meyer likes Ann and TJX, but Jefferies analysts warned investors that expectations for TJX are too high, and sentiment is potentially too positive. As a result, there is a risk for shares of the off-price retailer in 2014.
(Read more: US consumers a hard sell for traditional retail)
UBS' Michael Binetti is watching the world of sports for his 2014 forecast. Binetti said Foot Locker, Finish Line and Nike are well-positioned for growth in 2014 thanks to product introductions and price increases in basketball footwear.
There is much anticipation that Nike will launch a lower-priced version of its popular "flyknit" sneaker. Binetti said the flyknit technology "has strong potential to be the next 'big platform' catalyzing total industry growth."
Best yet to come for BBY?
Best Buy shares could have more room to run in 2014, despite the stock's monster rally, said Janney's David Strasser. He still likes Best Buy and estimates fourth-quarter earnings will be slightly ahead of the Wall Street's consensus estimates but notes that profit margins remain a concern. Currently, analysts are estimating that Best Buy will earn $1.61 a share in the fourth quarter.
(Read more: Why Best Buy may be a bad buy: Strategists)
Strasser is also telling clients that while the holiday season wasn't a strong one for Costco, it "remains the industry leader for consumer value and continued price investments," which will drive shoppers into the store and ultimately lead to outperformance in 2014.
Janney has an investment banking relationship with both Costco and Best Buy.
When it comes to the beaten-down teen retail space, American Eagle seems to be the favorite among analysts. There are still plenty of concerns about Aeropostle, and Wall Street's opinion Abercrombie & Fitch is split.
Piper Jaffray said Abercrombie's ability to reduce shipping time and its online sales events will boost the number of online shoppers and its sales over time. But Jefferies' retail team downgraded Abercrombie shares to "hold" from "buy" last week, citing concerns about the retailer's ability to remain relevant with its core teen shopper.
Some analysts expect Abercrombie, Aeropostale and American Eagle will warn of weak holiday quarter results by mid-January.
—By CNBC's Courtney Reagan. Follow her on Twitter @CourtReagan.