Retail stocks suffer rough day—how to trade them

Retail stocks took a beating on Wednesday after disappointing quarterly results from Macy's. But investors can still find upside in the sector, "Fast Money" traders said.

Macy's shares plunged 14 percent after the department store posted lower-than-expected third-quarter results and cut its full-year earnings outlook. A range of retail stocks dipped on the day as investors questioned how much the U.S. consumer is spending.

Discount chains may benefit if buyers are turning away from department stores, said trader Pete Najarian. He looked to shares of TJX Companies, which slid nearly 4 percent Wednesday.

Getty Images

A shopper with a Macy's bag in New York.

Nordstrom — which has put more emphasis on discount stores — reports third-quarter results Thursday. Its shares, which fell more than 3 percent Wednesday, could rally if the company posts even "remotely good" numbers, said trader Guy Adami.

Read MoreHere's why even the luxury retailers are down on Macy's poor guidance

Trader Steve Grasso sees teen retailer American Eagle as a "counter-intuitive" play, as the stock has climbed 13 percent this year. He also sees upside in J.C. Penney, which has jumped more than 30 percent this year as it continues to reorganize.

Trader Brian Kelly added that he would be "very worried" about commercial real estate company Simon Property Group if more retailers struggle.

Disclosures:

Pete Najarian

Long AAPL, AMAT, BAC, BMY, BP, CSX, DIS, DISCA, DKS, FOXA, GE, KKR, KO, MRK, PEP, PFE, PHM he is long calls ABX, BEE, DAL, DOW, EBAY, EMR, FIT, JOY, LM, MRK, PBR, POT, SLV, TJX, UAL, WYNN, XLF He is long puts EWW, FCX, MRO

Steve Grasso

Steve is Long AAPL, BA, BAC, CC, DD, DIS, DECK, EVGN, FIT, KBH, MJNA, MBLY, MU, OLN, PFE, PHM, T, TWTR, GDX firm is long AMZN, BP, COP, CVX, NE, NEM, OXY, RIG, SHLD kids own EFA, EFG, EWJ, IJR, SPY

Brian Kelly

Brian Kelly is long BBRY, GLD, Bitcoin, Hong Kong Dollar, US Dollar; he is short Yuan, British Pound, Candaian Dollar, Euro, Yen, EEM, EWC, EWH, EWU, EWG, SPY

Guy Adami

Guy Adami is long CELG, EXAS, INTC, Guy Adami's wife, Linda Snow, works at Merck.