This holiday season, instead of focusing on stuffing stockings and trimming the tree, turn a watchful eye to department stores. The economy may be down, but people are still buying. ‘Tis the season, after all. The only problem is that the retail sector can still be hit or miss. The issue isn’t always the economy. It is just as common that shoppers’ preferences change and the retailer doesn’t keep up. Department stores are a great option, because they preclude that issue. The department stores on our list offer a range of brands, some bargain store brands and others high-end brands. In any case, these stores have something for everyone, regardless price range.
Dillards Inc. (DDS) is a department store based in Little Rock, Arkansas. The company sells apparel, home goods and furnishings. Its selections include brands like Antonio Melani, Gianni Bini, Roundtree & Yorke and Daniel Cremieux. DDS is trading around $46 a share, or just 5.97 times its earnings. The stock has a one-year target estimate of $50.33 and pays a 20 cent dividend (0.44% dividend yield). DDS is currently listed as a hold, but that may be a little short-sighted. Sure, some analysts expect DDS will fall short of gross margin expectations, but with such a low P/E ratio and November sales that were higher than the same month last year, we think that DDS could be worth the gamble. Joel Greenblatt seems to agree. He upped his fund’s stake in the company by 50.49% in the third quarter.
J.C. Penney (JCP) is one department store that has undergone a lot of changes lately. Through the work of fund manager Bill Ackman, ex-Apple exec Ron Johnson was named CEO of JCP and, more recently, JCP signed a deal to install mini-Martha Stewart stores in its larger locations. As of the open of business on December 14, JCP was trading at $31.69 a share with an 80 cent dividend (2.40% dividend yield). JCP is priced at 17.02 times its future earnings, and is currently trading just under its 50-day moving average, suggesting now could be a good time to buy. Also, over 38% of the company is held by insiders, suggesting a fair amount of confidence in the company. Whitney Tilson is also a fan of JCP. He upped his stake in the company to 275,767 shares during the third quarter.
Kohl’s Corp (KSS) is headquartered in Wisconsin. It sells apparel, soft home products, like towels and sheets, and housewares, like small appliances. As of the open of trading on December 14, KSS was trading at $49.33, or 9.53 times its current earnings, with a one-year target estimate of $61.05. In addition to its upside, KSS also offers investors a $1.00 dividend (1.90% dividend yield). KSS’s earnings have been disappointing over the last five years, growing just 2.96% per annum – barely beating inflation. Analysts are more optimistic going forward. They predict the company’s earnings will grow by 13.93% per annum over the next five years.
Macy’s Inc (M) stores are known worldwide. Whether you know them as Macy’s or Bloomingdale’s, you see them on television commercials and they are featured in movies. They are also a good bet for investors. As of the open of trading on December 14, Macy’s was trading at $30.53 a share, 9.66 times its forward earnings. M has plenty of upside, with a one-year target estimate of $37.09 and a 40 cents dividend (1.20%) to sweeten the deal. M’s earnings have been growing at 4.97% per annum for the last five years but analysts predict the company’s earnings will grow by 11.55% per annum over the next five years.
Sears Holding Corporations (SHLD) is a department store specializing in apparel, tools and major appliances. As of the open of trading on December 14, SHLD was trading at $53.37, near the end of its 52-week range and above its one-year target estimate by nearly 25%. On the surface, SHLD may not be that attractive, but look under the surface. SHLD’s earnings have grown 6.76% per annum over the last five years and are forecasted to grow by nearly 15% annually over the next five. Bruce Berkowitz’s Fairholme is a fan of SHLD, so is Eddie Lampert’s ESL Investments. Berkowitz has almost $1.2 billion invested in the company while Lampert is still betting the farm with a $3.4 billion position.
TJX Companies (TJX) is the company behind the TJ Maxx, Marshalls and Homegoods stores. As of the open of trading on December 14, TJX was trading at $62.49 a share, or just under 14 times its earnings. It has a one-year target estimate of $66 a share and a 76 cent dividend (1.20% dividend yield).TJX has done very well earnings-wise – its earnings have grown 20.27% per annum over the last five years. Analysts predict TJX earnings will increase by 11.84% per annum over the next five years. There is strong consensus that TJX’s share price will outperform.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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