Among the biggest winners in Thursday’s early trading are JC Penney (NYSE: JCP), Abercrombie & Fitch (NYSE: ANF) and Avis Budget (NYSE: CAR).

JC Penney defies the Skeptics

When a stock goes into freefall, you can often assume that bad news is on the way. So after watching shares of JC Penney (NYSE: JCP) lose a third of their value during the past three months, it was safe to assume business was slowing down. But the retailer has actually been faring well, seeing same store sales rise +4.5% in June ahead of the consensus +3.4% forecast. That’s pushing shares up nearly+7% in Thursday trading.

The JC Penney sales results highlight the real challenge in this market. Fear has been the prime motivation. As investors see a stock chart start to weaken, they sell into the slump and assume there must be negative information coming. That’s why it’s crucial to stick with your convictions. If you think that a company is well-positioned for the years to come, then stand your ground. Yes, it’s painful to watch a dismal stock chart, but many of today’s losers will be tomorrow’s winners once fear no longer rules the roost.

Action to Take –> At 10 times fiscal (January) 2012 profits, shares of JC Penney have likely found a floor in the low $20s and should be appealing for those with longer time horizons. But strong near-term upside is likely to be muted until government data tells us that the economy will clearly avoid a second downturn.

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 Abercrombie’s Sudden Turnaround

Whereas broad line retailers like JC Penney tend to grow (or shrink) at a moderate pace, teen-focused retailers tend to see same-store sales figures swing wildly. Teenagers show tremendous brand loyalty for short bursts until the herd moves on to the next hot retailer. A decade ago, Abercrombie & Fitch (NYSE: ANF) was the most heavily-pursued ratail brand for teens and investors. In 2008, Abercrombie lost its cachet to rivals like Aeropostale (NYSE: ARO), seeing its shares go from $80 to $15 in just six months.

#-ad_banner-#Recent sales data have implied that Abercrombie still lagged its hotter rivals. So what to make of Thursday’s announcement that same-store sales rose a heady +9% in June? Rivals Wet Seal (Nasdaq: WTSLA), Buckle (NYSE: BKE) and Hot Topic (Nasdaq: HOTT) all saw same-store sales fall.

The short answer is that Abercrombie is back — for now. Same store sales gains are largely a reflection of improved market share, as teen spending remains fairly muted in this era of high unemployment, especially since summer jobs are increasingly scarce.

Action to Take –> Abercrombie & Fitch once again looks like an earnings growth story. Per share profits are expected to rise roughly +70% this year and another +40% in fiscal (January) 2012 to about $2.60. But the wild market share swings keep these teen-focused retailers from ever getting too high a multiple. Aeropostale, for example, with its impressive sales and profit momentum, still trade for just 10 times next year’s profits. If you are going to play this space, Aeropostale still looks like the better bet, despite Abercrombie’s current momentum.

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A Healthier Rental Car Market

Shares of Avis Budget Group (NYSE: CAR) are up sharply for the second straight day after rival Dollar Thrifty (NYSE: DTG) announced Wednesday morning that it would post very strong operating income in its second quarter.  Dollar Thrifty has agreed to be acquired by industry leader Hertz (NYSE: HTZ), which is great news for Avis as well. That’s because Hertz is expected to eliminate some Dollar Thrifty locations at airports and elsewhere that directly compete with Hertz. So consumers will be faced with a smaller array of rental car choices, enabling the rental car firms to boost prices. 

Action to Take –> Shares of Avis had run up toward the $12 mark in anticipation of this industry-boosting consolidation, but they’ve given back about -20% since then — despite this week’s rally — and trade for a very reasonable eight times projected 2011 profits. When the economy gets back on its feet, earnings for this economically-sensitive company could power higher, implying an even lower multiple for peak earnings.