The Grinch has had a firm grip on the holidays this year, so investors hoping to find bargains among beaten-down retail stocks should check the balance sheets of any retailers whose shares they're considering buying.

A number of the industry's weakest players, including Linens 'n Things, Sharper Image and Circuit City Stores, have filed for bankruptcy protection. And with the capital markets closed to all but the highest-quality names, these three are unlikely to be the last to do so.

The ranks of cash-rich retailers include Costco Wholesale, Amazon.com, Coach and Nike (which has stores and an online shop as well as a global manufacturing operation). But having a lot of cash doesn't guarantee a good showing in the stock market.

Shares of Costco, which has almost $1 billion in its coffers, are trading at about 17 times expected earnings for its next fiscal year, which will end in August 2010. That's one of the highest price/earnings ratios in the group. And Internet retailer Amazon.com has $2.3 billion of cash, but has been trading at 35 times next year's expected earnings.

Nike and Coach would have cash left over if they paid off their debt, and sport more modest forward-earnings multiples -- roughly 13.5 and 9.5, respectively. As a result, Bob Drbul, a retail analyst at Barclays Capital, has an "overweight" rating on both.

Abercrombie & Fitch and American Eagle Outfitters both have more cash than debt. David Berman of Durban Capital, a New York hedge fund, prefers American Eagle. The teen retailer sells less-expensive clothing than its counterpart, something many parents will appreciate. Still, he warns that both will likely miss their earnings estimates this year. But they might appeal to long-term investors.

The market has already sniffed out some retailers that could have big problems. Bon-Ton Stores , a department-store chain, recently was trading for about $1 a share, wretchedly below its high of $57, hit in March 2007. Talbots, a women's-apparel chain, is fetching about $2.35; Dillard's, about $3.45; and Charming Shoppes , another women's-wear retailer, about $2.40. All are expected to post losses this year and have borrowed heavily, relative to operating performance. Bottom-fishing here looks unwise for now.

Macy's just negotiated looser terms on its $2 billion in currently unused bank loans. On the news, investors sent the shares up strongly. Investors had been concerned about the $950 million of debt coming due in 2009, despite Macy's assertion it could make necessary payments out of cash flow. But the company still has $226 million of debt maturing in 2010, $650 million coming due in 2011 and $1.3 billion payable in 2012, along with its bank line of revolving credit. Investing in Macy's debt may be a better option, since the notes due in 2016 trade at a level that produces a 16% yield to maturity.

What else should small investors stay away from? Based on her analysis of balance sheets and debt levels, Carol Levenson, director of research at Gimme Credit, says she's most worried about the credit quality of Liz Claiborne, Jones Apparel Group and Sears Holdings.