6 Department Store Stocks Worth The Risk

Dec. 18, 2011 8:03 AM ETDDS, CPPRQ, KSS, M, SHLDQ, TJX2 Comments
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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

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