Best Buy, the consumer-electronics giant, had an inventory-to-sales-growth ratio of 84% in the fiscal quarter ended Aug. 29 A ratio below 100% means inventories declined at a greater pace than sales, or grew by less than sales. Indeed, in Best Buy's case, sales surged 12% in the period, while inventories shrank 6%. Best Buy trades for 14 times estimated earnings of $2.94 a share for the year ending Feb. 28, and 13 times fiscal 2011 estimates of $3.18. "Best Buy is poised to win this holiday season," says Kevin Grant, co-manager of Oakmark Fund, which owns the shares. "The big thing today is the connected lifestyle. Best Buy is at the forefront." Though Grant says Wal-Mart Stores (WMT) has done a "great job" in consumer electronics in the past year, there is less overlap with Best Buy's product offerings than one might think. Grant expects Best Buy's shares, now 42, to outperform the market next year.

Another retailer with good controls on inventory is Chico's FAS. The specialty-apparel company, which targets female baby boomers, managed to reduce inventories by 9% in the period, even as sales grew 4%. Chico's is expected to earn 28 cents a share in the fiscal year ending January, and 54 cents in fiscal '11. Back out the company's $2 a share in cash, and its stock, at 13, fetches 20 times '11 estimates. Susquehanna analyst Thomas Filandro recently raised his price target to 18.

Dollar Tree has rallied only 29% in the past year, to 48.20. Sales have jumped 12%, versus a 3% rise in inventory. The discounter, which sells household staples, including food, has benefited from deflationary pressure on costs, and an influx of new, price-conscious shoppers. According to Berman, second-quarter operating margins expanded by 1.66 percentage points, while sales at stores open at least a year climbed by 6%. Dollar Tree "is doing a phenomenal job of merchandising and layout and the customer clearly loves it," Berman wrote. RBC Capital Markets recently initiated coverage with an Outperform rating, and expects the shares to rise 18% in the next 12 months.

Among specialty retailers, Johnson of Customer Growth Partners thinks Gap will have an "outstanding" holiday season. It has done a better job of controlling costs and boosting earnings than competitors, and has launched a big advertising and marketing campaign. Gap trades for 15 times fiscal 2010 earnings estimates of $1.50 a share, well below the group's average multiple of 21. Inventories fell by 13% in the second quarter, Berman notes, far more than the 7% drop in sales. Gap trades for 22.14, just below its 52-week high.

In his latest report, Berman said upscale retailers "seem to be rebounding." That's true of Coach, the handbag and accessories maker, whose shares have doubled in the past year, to about 35. The company, which is introducing a less expensive Poppy line for teens and young adults, trades for 17 times fiscal 2010 estimated earnings of $2.08 a share, below its historical P/E of 20. It earned 44 cents a share in its fiscal first quarter, ended Sept. 26, flat with a year ago, notwithstanding a punishing recession. Morgan Stanley has a 39 price target on the stock.