Retail sector rallies 8% in a week. Four stocks to watch ahead of the holidays

Retail is on the rebound.

The SPDR S&P Retail ETF (XRT), which tracks the group, rallied almost 8% last week, fueled by gains in names including Etsy, Best Buy, Gap and Ross Stores. Etsy shares advanced by more than 20% last week.

With consumers becoming more cost-conscious, investors might want to consider buying into some of the discount retailers ahead of the holidays, Chantico Global CEO Gina Sanchez said Friday on CNBC's "Trading Nation."

"If you're not going to go for e-commerce convenience, which has been benefiting Etsy, then you're going to go for low cost," she said. "We think names like Dollar General or Target … could continue to be robust through the holiday season."

Piper Sandler's Craig Johnson said some of the week's winners were worth watching.

"The Best Buy chart looks like it's just getting started in here," Johnson, his firm's senior technical research analyst, said in the same "Trading Nation" interview.

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"The stock is finally breaking out to new highs," Johnson said. "We've been seeing a nice pickup in the relative performance."

Better yet, the fundamentals match up with the technicals, Johnson said, citing research from Piper Sandler analyst Peter Keith.

"He's got a $138 target on it. It looks like there's more to go," Johnson said. "The stock is still trading cheap relative to the historical, longer-term compound average growth rate of around 21%. So this stock looks like it still should be bought."

Best Buy shares closed unchanged at $123.06 on Friday. It was up 3% in Monday's premarket, after major positive news on a coronavirus vaccine.

Johnson also flagged some positive trends in shares of Gap.

"We don't follow this stock fundamentally, but you've got a great long-term downtrend reversal, insiders own about 17% of the company and the trend is great," he said, citing the chart.

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"That big long-term down[trend] reversal now making a series of higher highs and higher lows on the chart looks like another stock in here that still has more room to run," he said.

Gap shares closed up just over half of 1% at $21.43 on Friday after hitting a new 52-week high. It was up nearly 9% in Monday's premarket, at $23.35.

Disclosure: Piper Sandler is a registered market maker for Best Buy and Target. Lido Advisors owns shares of Dollar General in the model portfolio.

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