Nowhere is Mr. Market's giddy optimism more evident than the recent surge in the shares of ailing retailers. I don't believe that investors need to avoid the broad retail sector altogether, but unless your to-do list includes getting taken to the cleaners, you’d better be a seriously smart shopper.

Massive mark-ups in the low-quality aisle
That the most beleaguered of the retail-related companies have rallied the farthest in the past months is no surprise: Positive market momentum is often strongest at the backs of the recently worst performing. Of course, as Foolish investors, we're concerned with company fundamentals rather than herd behavior.

On that note, housing market news suggests that there may be far less disposable income heading to the mall than is expected by the I-spy-green-shoots investor marching band. According to The New York Times, from November to February, the number of prime borrowers suffering some stage of foreclosure increased by roughly 473,000 to over 1.5 million, compared to 1.65 million in the subprime category. Mark Zandi, chief economist at Moody's Economy.com, sees that trend "intensifying" due to widespread job loss. When the most credit-worthy consumers can't keep their homes, they're probably not racing out for a closet load of the latest apparel.

With that in mind, I tapped the intelligence of the Motley Fool CAPS investing community to see which consumer discretionary stocks look like a pass, and which may offer staying power through an extended consumer crunch.

Pricey and threadbare

Company

Industry

CAPS Rating (5 max)

% Above 12-Month Low

4-Week Price Change

Dillard's (NYSE:DDS)

Retail

*

303.6%

30.5%

Talbots (NYSE:TLB)

Retail

*

172.3%

32.2%

Tuesday Morning (NASDAQ:TUES)

Retail

**

672.5%

18.3%

Data from Motley Fool CAPS as of 5/27.

All-season buys

Company

Industry

CAPS Rating (5 max)

% Above 12-Month Low

4-Week Price Change

Hasbro (NYSE:HAS)

Consumer Durables

****

9.6%

(13.7%)

Nike (NYSE:NKE)

Consumer Non-Durables

****

42.3%

2.8%

VF Corp (NYSE:VFC)

Consumer Non-Durables

****

47.1%

(4.8)%

Data from Motley Fool CAPS as of 5/27.

Not a slam dunk, but maybe a swish
According to CAPS members, the retail highfliers listed in the first table are hardly deserving of their pumped-up stock prices. My Foolish colleague Alyce Lomax agrees that Talbots, for example, faces heavy debt burdens and ruthless competition. As for the CAPS 4-star-rated companies -- all of which operate predominantly on the manufacturing end of the spectrum -- I am most intrigued by Nike's prospects.

Admittedly, the company does have a tough workout ahead of it. Not only does it face competition in the athletic shoe category from long-run competitors Adidas and Puma, it also now has to fend off a market share grab by Under Armour's (NYSE:UA) new line of performance footwear. That said, Nike has room to excel on cost cutting: It recently announced that it will axe 5% of its workforce, and it expects that planned operational changes will result in an eventual annual savings of $175 million to $225 million -- a significant amount, in light of third-quarter 2009 earnings of $243.8 million.

Nike shares are not screamingly cheap at a 2010 P/E of 15, but the company's $1.8 billion in net cash and established brand equity make it look like one of the smarter bets for investors who want some consumer discretionary exposure before the economy slips back into its track suit.

As for hard-luck retailers, buying into views of a less-worse outlook could be a regrettable purchase.

Related Foolishness:

Under Armour is a Motley Fool Rule Breakers pick. Hasbro is a Motley Fool Stock Advisor recommendation. VF is a Motley Fool Income Investor selection. Under Armour is a Motley Fool Hidden Gems recommendation. The Fool owns shares of Under Armour. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Mike Pienciak does not hold shares in any company mentioned. The Fool's disclosure policy won't cost you a dime.