Sterne Agee Sees Turnaround For Retail Stocks

Retailers for much of 2014 have been among the least-loved stocks on Wall Street. But improving results posted in the recently ended second-quarter earnings season could help turn that around.

Notwithstanding basket cases such as RadioShack Corporation RSH, soap-opera stories from the likes of American Apparel Inc APP or the slow death of the department store, Sterne Agee's Ike Boruchow said investor interest in the sector is showing signs of life.

"We continue to see an increased appetite to own the group from investors," Boruchow said in a note Tuesday. Improved second-quarter results "have brought retail stocks back into vogue."

Of course, record-breaking lousy winter weather in many parts of the country virtually guaranteed a second quarter bounce-back as shoppers' feet thawed out.

Always looking ahead, Borochow said it's the third quarter that "will be key to determining whether the bounce was due to improving fundamentals or just normalized weather."

Because sales in the sector on average have shown slowing growth in nine of the past 11 quarters, the analyst believes improvement shown in the second quarter "may be reflective of the start of a recovery."

So Borochow recommends buying Signet Jewelers Ltd. SIG, Sally Beauty Holdings, Inc. SBH, The Gap Inc. GPS and Kate Spade & Co KATE

All the recommendations rose by less than one percent Tuesday.