Investors Finally Come Back to Retail Stocks : Securities: Many issues are top performers due to a pickup in consumer confidence and recent sales gains at stores.

Wall Street is bringing tidings of joy to retailers this holiday season. After years of playing Scrooge, investors are stocking up on shares in apparel and specialty stores, department stores and general merchandisers.

Retail stocks have been rallying since last summer, but they now rank among the top performers in the market, thanks in large part to improved consumer confidence in the economy and respectable retail sales gains in recent weeks.

“There’s reason to believe we’ll see a good holiday (shopping) season. We haven’t had a real good one since 1986,” said Thomas J. Tashjian, a retail industry analyst for First Manhattan Co.

“We currently have a more stable economic environment with moderate improvement in consumer demand,” he said, predicting a 6% gain in retail sales this year after four years of flat or declining sales. “I wouldn’t be surprised if I saw quite a few empty (store) shelves by the end of the year.”

Tashjian said that unlike previous years, many retailers are keeping leaner inventories and offering fewer costly promotions, or markdowns, both of which should improve their balance sheets, and ultimately their share prices, for the rest of the year.

So far, the gains on Wall Street have been noteworthy.

The overall retail sector has risen 16.1% in value since the start of 1992, compared to a 3.4% increase in the Standard & Poor’s 500 Composite Index, according to S&P.;

Among the big winners: retail specialty companies, which include Toys R Us and Home Depot, up 27.9%; retail department stores, including Dillard, May and J. C. Penney, up 17.2%; and general merchandise retailers, including Wal-Mart, Dayton Hudson and Sears, up 14%.

Specialty apparel retailers, which include companies like Gap and Limited, suffered a 6.5% decline in their stock price, reflecting lackluster sales and merchandising problems through part of the year.

Among mutual funds, Fidelity Select Retailing shot up 35% the last 12 months, while Fidelity Consumer Products rose 19.34%, according to Lipper Analytical Service, which tracks mutual funds.

The retail sector overall had been among the poorer market performers in recent years because of the drop in consumer spending brought on by the recession. As a result, many retail stocks became so undervalued that they were almost cheap in comparison to other shares, explained Jeffrey Edelman, an analyst with C. J. Lawrence Inc.

“Then you began to see anticipation that Clinton would win and come in with some (economic) stimulus,” and consumer spending gradually picked up, he said. “The retail group is now one of the standouts in the second half of the year.”

Small and big investors alike have taken notice.

Michael Lipper, head of Lipper Analytical, says more and more mutual fund managers have been increasing their holdings in retail stocks.

“It’s a historic trend that happens as we come out of a recession,” he explained. “Consumer spending has traditionally represented two-thirds of any economic expansion.”

Ken Heebner, who manages mutual funds for Capitol Growth Management in Boston, said six months ago none of his funds included shares of retail companies but today such shares exceed 5% in most funds.

Heebner said he’s especially bullish on Caldor, which he believes is poised for growth because of recent management changes.

Meanwhile, First Manhattan’s Tashjian says he’s attracted to specialty apparel retailers like Merry-Go-Round and Catherine’s Stores because they’re expanding and are expected to have substantial earnings increases this year and next.

But Wayne Hood, an analyst with Prudential Securities Inc., cautions investors from jumping onto the retail bandwagon, noting that many shares right now are at or near their highest levels this year.

“The time to buy was back in July” when prices were cheaper, he said, urging investors to pick or choose retail stocks carefully.

While some shares are likely to continue to rise in price, many more “will be treading water until we get into spring,” Hood said.