Readers of this space know that the retail sector/apparel is best avoided: the era of the frugal consumer and a surplus of store chains has led to challenging conditions for retailers, to say the least. However, there are exceptions, and Macy's (NYSE: M) is one. The argument here is that Macy's will be able to combine right-sizing of its chain and rigorous cost cuts with established brands (the Macy's chain also runs the upscale Bloomingdale's chain) to survive the downturn. Wall Street doesn't expect any improvement near-term, forecasting a 6-10% revenue decline for FY2010.
Moreover, the Street has bid-down shares accordingly, but investors who can tolerate moderate risk should look on that as getting a discount: Macy's shares, currently trading in the $11-12, are practically in the category of being 'as cheap as an empty shoe box.' The First Call FY2010/FY2011 EPS estimates for M are 68 cents to $1.04.
Don't misunderstand: Macy's shares are not for low-risk investors, and if the U.S. economic recovery fails to materialize by the fall, that will be bad news for shareholders. That said, the risk/return is favorable.
Stock Analysis: Macy's is a moderate-risk stock. Consider buying a 25% position in M now, then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your M position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $4.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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