Three Retail Stocks to Buy Now

CARMAX (KMX)

Now that the new-car buying frenzy sparked by the government's Cash for Clunkers program has faded, companies like CarMax (KMX) are back in the limelight and capitalizing on consumers' need to save money. KMX is the largest specialty used-car retailer in the U.S. The company buys, reconditions and sells cars and light trucks at 100 retail units in 25 states, mainly in the Southeast and Midwest. The company sells cars that are generally under six years old with less than 60,000 miles. It also sells cars through its ValuMax program. ValuMax cars are older than six years or have more than 60,000 miles. The company's website lets customers search CarMax outlets nationwide for a particular model. As consumers look for the best deal on a new auto, KMX is seeing a big boost in sales and profits.

BEST BUY (BBY)

Best Buy (BBY) stands to benefit from the failure of weaker competitors. Now that Best Buy has defeated Circuit City, which was recently liquidated in connection with its bankruptcy filing, the lack of competition in key markets and opportunity for future growth mean the sky is the limit for operating margins in 2009. Best Buy isn't just profiting off of Circuit City's demise. The company operates about 1,300 stores in the U.S., Canada and China with an economy of scale that allows it to operate efficiently and very profitably. This strategy has paid off handsomely in the last year despite the market turmoil. Best Buy is seeing strong holiday sales with its wide array of high-tech gadgets, and should see continued success in 2010.

AEROPOSTALE (ARO)

Aeropostale (ARO) operates more than 900 stores in 48 states that sell clothes to trendy teenagers. The company's most popular brands–Aeropostale and Jimmy'Z Surf Co.–include jeans, T-shirts and accessories. Aeropostale designs and sources its own merchandise so that it can quickly respond to trends. This strategy seems to be paying off–ARO is bucking the poor sales trend thanks to the fact that its products target the biggest spending machine on the planet: teenage girls. In October, Aeropostale's earnings rose 84% and sales rose 20%, beating estimates on both fronts. The company continues to do well, and I expect big things from ARO in 2010.