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Retail stocks lead the rally. Time to buy in?

There are nearly as many reasons to hate the retail sector as there are listed retailers: The margins are often low, competition is rife, fixed costs are relatively high, and consumers can be fickle, buying one day and walking away the next.

Still, for today at least, it’s retail stocks leading the market rally. As of this writing, shares of department store chain Myer (ASX: MYR) are up over 6%, while competitor David Jones (ASX: DJS) is up 4%. Home goods and furniture retailer Harvey Norman (ASX: HVN) shares are also up nearly 5%, while the overall S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) has climbed about 1.6%.

Some of these movements might be hard to fathom until you consider, for one, how cheap shares of Myer have lately been. Myer shares have traded between eight and ten times earnings for much of the year, despite a dividend yield near 8%, fully franked, a seeming bull’s eye in a season when many investors have been chasing yield.

Momentarily, it seems, Mr. Market’s fears about wavering consumer confidence, and of the internet destroying Australian brick-and-mortar retail, have been laid to rest.

So is it time buy?

Keep in mind, the best time to buy these retailers is when Mr. Market is more afraid than ever, and investors are dumping the stocks left and right. A rally like today’s feels good – especially after the market slide of recent months – but you’re generally better served, as an investor, when you buy on days when fear and panic reign. That’s when you’ll get the most value, and over time, likely the better return.

Meanwhile, The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool contributor Catherine Baab-Muguira does not own shares in any company mentioned in this article.

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