Amid all the volatility, two retail stocks are surging — and traders still see them as a bargain

Amid all the recent volatility, a handful of retail stocks have staged a major comeback this year, leading the S&P 500's consumer discretionary sector into the green for 2018. Despite the gains, two market watchers see a number of bargains in the group.

To Mark Tepper, president of Strategic Wealth Partners, Kohl's is the best-positioned retailer out there.

"In the retail business, if you don't evolve you die. Amazon just continues to crush these brick-and-mortar retailers," Tepper, told CNBC's "Trading Nation" on Thursday. "So if you can't beat 'em, join 'em. And that's exactly what Kohl's has done."

Kohl's has partnered with Amazon to drive traffic into its stores, he said. The retailer now accepts returns from Amazon customers as part of the deal, an offer Tepper calls a "smart way" to bring possible customers into Kohl's locations to see its merchandise.

"Beyond the partnership with Amazon, they're focused on growing their e-commerce business to evolve, online traffic is up, conversions are up and that's all led to a 26 percent increase in online sales during the fourth quarter," he said.

Their valuation relative to earnings also looks attractive, according to Tepper.

"This thing has room to run," he said. "When we look at Kohl's with a forward P/E of 12 and a yield of 4 percent, that's a good buy."

Kohl's shares have added nearly 20 percent in the year to date, making it the fifth-best performer in the consumer discretionary sector. Over the past 12 months, the stock has surged 61 percent. Valuations have ticked higher to 12 times forward earnings from 11 times at this time last year.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, has his eye on Target. Its advantage is that it is offering the consumer something different, he says.

"What I like about Target is that they like to partner up with designers and create limited-run stuff, something that is not available at Amazon, something that is unique, something that could drive people to the store," Schlossberg told "Trading Nation" on Thursday.

"That, I think, is the future of retail," he said. "It's not about being like Amazon. It's about doing something completely different from them."

An overall improving economy and its impact on the consumer should also benefit Target and its peers, Schlossberg said.

"If we get stronger wage growth amongst the U.S. consumers, a natural tide is really going to help all of them, and Target should benefit the most," he said.

Target has advanced 10 percent so far this year and has risen 34 percent over the past 12 months. Its stock began the year with a valuation of nearly 16 times forward earnings, but now trades at a 13.5 times multiple.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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