Retailers' Run May Be Over: Analyst

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After a strong 20 percent run-up in consumer discretionary stocks this year, one analyst is predicting a more challenging 2013.

"We've had a great three-year run in consumer discretionary in terms of both sales growth and profitability gains," said R.J. Hottovy, an analyst with Morningstar. "So we think there's a pullback in store for 2013."

He also said consumers could continue to put off discretionary purchases particularly if tax rates go up and paychecks shrink in January.

Dana Telsey of Telsey Advisory Group said consumer confidence will be important for retailers next year. "We need stability and some decisive actions to get the consumer comfortable again," she told CNBC.

In this more uncertain environment, Hottovy likes low-price retailers and Costco. He is also recommending late-stage cyclicals — like Home Depot and Williams-Sonoma — that may do well as the housing market continues to recover.

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Telsey said retailers with the right product, pricing and that can expand their brand should be standouts in 2013.

She pointed to Nordstrom, Urban Outfitters and Michael Kors. Nordstrom continues to expand its The Rack stores, while Urban Outfitters continues its turnaround. Michael Kors is more of a first-half story, Telsey said, as demand for accessories should remain strong.

Tiffany is a turnaround story for the second half, Telsey said. "Tiffany is working on its product," she said. "Its silver business, which is a high-margin category, didn't have enough novelty or newness. Hopefully that's something it can fix for next year."

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Neither analyst had any conflicts to report.