Time to Rotate Into Retailers BBBY and AEO?

Many shall be restored that now are fallen, and many shall fall that now are in honor.

Last Friday and into the weekend, I gave my retail outlook and then a day later I noted that the analysts were starting to come on board.

And now there are two analysts that I know of on the record saying that retail is the next big sector to rotate into because their evidence suggests retail outperforms in difficult economic times.

As I said: "[Policy actions won't have an immediate effect], but it will be visible and oversold sectors dependent on the consumer ( i.e. retail) will rally ahead of the actual economic recovery."

Today's comments were from Oppenheimer analyst Vivian Ma (via the AP):

"We believe that a recession scenario could be an opportunity for early cycle retail/consumer names, according to our analysis of the 1981 to 1982 and 1990 to 1991 recessions and the 2001 slowdown," Ma wrote.

In all three periods, retail stocks as a group outperformed the S&P 500 index by an average of 188 percent during the lowest part of the period until the recession or slowdown was over, according to Ma.

"With little visibility into the duration of an imminent recession/slowdown, we'd recommend investors stick with retail/consumer subsector leaders with 'top-of-class' consistency, profitability and cash flow generation as well as still favorable footprint-growth opportunity," Ma wrote.

Her top picks include "Outperform" rated home-furnishings retailer Bed Bath & Beyond (BBBY).

In the last two days, BBBY is up 15.6% and AEO is up 17% - and since the moves are coming so fast, it's probable that we'll see a pullback. Still, we are in the very front stage of a sector rotation into oversold, quality retailers and these two stocks should make shareholders good money in the next year.