Uncertainty about how far the stock market and real estate market might fall kicked off 2009. Many Americans worried about losing their jobs and their ability to provide food and necessities for their families. Naturally, this caused many consumers to ratchet down their spending in a dramatic way, in a relatively short period of time. But in an interesting twist, the spotlight was placed squarely on discount retailers like Wal-Mart (NYSE:WMT), Kmart (Nasdaq:SHLD) and Target (NYSE:TGT).

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Focus on Discount Retail
Although consumers became rather conservative with their spending, they didn't eliminate it altogether. However, they avoided making big ticket purchases at higher-end stores and department store chains, choosing instead to spend with the discount retailers, which made a great deal of sense. Discount chains, after all, stock vast selections of merchandise at low prices.

Perhaps not surprisingly, Wal-Mart met or exceeded earnings estimates for the last four quarters in a row. In addition, Target beat earnings estimates in three of the last four quarters. As for Kmart, which operates under the Sears Holdings wing, it also beat expectations in three of the past four quarters.

Taking a look at some earnings estimate trends in early December, estimates for Wal-Mart over the last 90 days went from $3.59 to $3.61 this year and the estimate for 2010 increased to $3.96 from $3.91. Meanwhile, the estimates for Target over the last 90 days went from $3.02 to $3.17 and the estimate for 2010 increased to $3.55 from $3.36. Such gains can garner these retailers increased attention from the investment community.

As for stock performance, as of early December, Target was up more than 36% over the prior 52-week period. Wal-Mart, on the other hand, did not fare so well. Its stock was off just over 1% over the last 52 weeks. However, Wal-Mart's shares held ground pretty firmly throughout the financial crisis, which is to be commended.

Deep Discounters Show Promise
Beyond the traditional large name discounters, some consumers also turned their heads toward deep discounters, like big players Dollar Tree (Nasdaq:DLTR) and 99 Cents Only (NYSE:NDN). Both stocks advanced handsomely from the lows reported during the spring. Going forward, this space should fare well.

Bottom Line
Discounters held up pretty well in 2009, as consumers hunkered down. The big names turned in better-than-expected quarters. Because many consumers have altered their buying habits, solid performances should continue in this space. (For more on this sector, read Analyzing Retail Stocks.)

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