(MONEY Magazine) -- Personal spending on items such as clothes and travel has perked up lately. To date, though, most of the money has flowed to either end of the retail spectrum: luxury chains that target wealthy consumers who don't have to watch their wallets or discounters catering to households worried about making ends meet. The stocks of these retailers have been bid up accordingly.
Left out of the rally but poised for takeoff this year are the mid-tier companies, especially those that offer unique brands or services, says Matt Arnold, a consumer analyst at Edward Jones. Their moderate prices appeal to deal-conscious consumers, he says, but the products satisfy more than a basic need, providing buyers with the feeling they're getting something extra for their money.
The key to unleashing demand in the mid-tier, Arnold says, is a modest improvement in the job outlook: "If we can add between 100,000 and 200,000 new jobs each month, that could be the rising tide that lifts those boats."
These two companies seem ready to ride the wave.
Kohl's Corp. (Fortune 500),
The chain had a tough start to the holiday shopping season but appears strong over the longer term, says David Giroux, manager of T. Rowe Price Capital Appreciation fund, which has a stake in Kohl's.
The company has been taking market share from competitors, partly due to partnerships to create exclusive brands with designers such as Vera Wang. "That kind of product differentiation is key," Giroux says.
Over the next five years Kohl's earnings are expected to grow 12% annually. Yet the stock trades at just 9.5 times 2012 earnings, well below competitors with a similar growth rate.
Last year's often subdued same-store sales are probably to blame, but Giroux sees that as a positive, noting, "It sets up very easy comparisons for 2012."
Walt Disney ( , Fortune 500)
Forget Mickey, Minnie and even Simba. The brightest jewel in the Disney empire today is cable sports programmer ESPN, which along with the company's other TV channels, delivers 45% of total sales.
To secure its competitive advantage, ESPN recently renewed its contract with the NFL for eight years, and began streaming programming to most mobile devices.
"There's been such focus on the streaming-video companies but valuations there are scary," says Dan Morris, manager of Manor fund, which owns Disney. Netflix, for one, trades at 123 times 2012 earnings; Disney, at 10.6.
Traditional Disney businesses are doing well, too. New rides and hotel renovations sparked an 11% jump in revenues from the parks and Disney cruises last year, vs. a 0.9% decline in 2010. Meanwhile, the company, with a dividend yield of 1.7%, just announced a 50% increase in its payout, to 60¢ a share.
Consumer Fund Picks
To make a targeted bet, go with the Consumer Discretionary Select Sector SPDR ETF (), which owns Walt Disney and Kohl's.
Don't want to go all in? Look at T. Rowe Price Growth Stock (), with a 20% stake in consumer discretionary stocks, nearly double the sector's S&P 500 weighting.
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