Under-the-radar retail stocks to ride the consumer comeback, traders say

It may be time to ditch pandemic-favorite retail stocks like Best Buy and Etsy and rotate into other under-the-radar names in the space.

Wedbush downgraded Best Buy to neutral and Keybanc bumped Etsy to sector weight on Monday. The XRT retail ETF, which tracks the group, is up nearly 46% this year as optimism around the Covid vaccine rollout has boosted consumer optimism across the U.S.

As thousands of Americans also receive the latest round of stimulus checks, Mark Tepper, president of Strategic Wealth Partners, encourages investors to consider retailer City Trends as a way to play the consumer comeback.

"They're a value retailer, they've got apparel, they've got consumer goods and their target market is those people making less than $50,000 a year," Tepper told CNBC's Trading Nation on Monday.

Shares of the Georgia-based value retailer are up nearly 114% this year.

"[City Trends] should be an outsized beneficiary of the stimulus package that just hit consumers," Tepper said. "I like them over the course of the next few months."

Ari Wald, head of technical analysis at Oppenheimer, said there's another buying opportunity hidden within the small caps. He notes how the small-cap automotive retail group relative to the S&P 600 small-cap benchmark had broken out from its March lows but "over the subsequent six months it's just traded sideways after that period of leadership."

Wald highlighted shares of Sonic Automotive, which are up 33% this year compared with the S&P 500's 11% gain.

"We can see the consolidation through the back half of last year [and] broke higher in March," Wald said. "I think as long as the breakout holds still above average our expectation is that the uptrend resumes and you get that new high above $56 area."

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