"It's going to be a ho-hum holiday season," said Alan Rifkin, Lehman Brothers' retail hardlines analyst. High gas prices, energy costs, strong promotional pricing and other factors will hurt chain stores' performance, he said.

But the analysts did not only focus on bad news. The retail industry has a few areas going for it right now during the holidays, such as an extra selling day (30 versus 29) compared to last year, better macro-economic conditions and a resilient housing market.

Retailers Rifkin chose as near-future stock picks were Bed Bath & Beyond, calling the company "the most consistent retailer in the United States," Best Buy, the Home Depot, Lowe's and PetsMart. He stressed that investors should pick retailers with strong fundamentals, and not bank on possible takeovers or other scenarios. "It's been a tough environment for retailers," he said.

Meanwhile, National Retail Federation officials predict a 5% increase during the holidays, dropping from what they say was a 6.7% jump in 2004. "A combination of many factors, including energy prices, the job market, disposable income and consumer confidence, will ultimately affect retailers' sales this holiday season," says NRF chief economist Rosalind Wells in a statement.