JP Morgan Cazenove picks Home Retail , Marks & Spencer and Debenhams as three key retail stocks for investors to buy as it sees consumer indicators stable to positive and the potential for retail activity to pick up into 2013.
"Given the improving consumer trends, we could see a decent step up in retail activity come the festive season and into 2013," JP Morgan says in a note.
The investment bank sees Home Retail as a beneficiary from competitors exiting the market place over Christmas; Marks & Spencer as a stock specific story where expectations are low and the potential significant with a possible Q1 catalyst; and Debenhams as likely to benefit from a consumer recovery and leveraging a robust online strategy.
Home Retail, Marks & Spencer and Debenhams rise between 1.9 and 4.2 percent.
Retailers , despite the depressed broader economic environment, have outperformed the FTSE 350 in 2012, adding 11.1 percent compared with a 3.8 percent rise by the broader index.
The sector trades on a forward 12-month price-to-earnings of 11.9 times, remaining below its 10-year historical median of 12 times, according to Thomson Reuters data.
JP Morgan says the next catalyst for gains in the sector could well be earnings momentum and it remains confident in its positive view.
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