Credit Suisse analyst Michael Exstein’s recent report on department stores highlighted 95 of the most productive shopping malls in America.
According to Exstein, these malls “contain a selection of high-end key complementary tenants.” A secret sauce, if you will, that gives mall owners a leg up on the competition.
Dubbed the “Most Valuable Properties” by Exstein, the analyst used a three-step process to identify the “key tenants” for a mall to be considered for “MVP” status.
First, he came up with a list of 11 malls considered by most industry experts to be top-flight properties. Exstein’s report found that there were six key tenants operating in over half those 11 high-end malls.
He then gathered a database of 2,101 malls, whittling the list down to 95 addresses simply by filtering out malls with two or fewer of the six “must have” stores.
Ranked by weighting, here are the six stocks to buy now to create the MVP portfolio.
Stocks to Buy Now: Apple Inc. (AAPL)
MVP Portfolio Weighting: 30%
Apple (AAPL) gained about 15% since Feb. 3, when InvestorPlace contributor Charles Sizemore called it “ridiculously” cheap.
Sizemore suggested Apple, at the very least, should trade in line with slower-growth companies such as Procter & Gamble Co (PG) or Kimberly-Clark Corp (KMB).
Apple might be experiencing some serious volume shrinkage with some of its products, but the last time I looked it was still generating more than $60 billion annually in free cash flow.
It might not have an “it” product at the moment, but until share prices stop being determined by a multiple of earnings, I think you have to put Apple stock at the front of the line.
Stocks to Buy Now: LVMH Moet Hennessy Louis Vuitton SE (ADR) (LVMUY)
MVP Portfolio Weighting: 20%
With one investment (albeit an over-the-counter buy unless you can get it direct), investors get a conglomerate-like business operating in several areas of the luxury market, including retail.
Louis Vuitton (LVMUY) stock is a good indicator of the overall health of this market.
While the sale of luxury goods have done reasonably well since the 2008, LVMUY stock has delivered little for shareholders. Up 4% on an annualized basis over the past five years, the S&P 500 has bettered it by about 7%.
I can’t believe that an outfit with brands such as Dom Perignon, Louis Vuitton, Guerlain, Tag Heuer and Sephora couldn’t put together a better showing.
With organic revenues up 6% in 2015 along with a 16% increase in profits, it’s only a matter of time before the stock moves higher.
Stocks to Buy Now: Cheesecake Factory Inc (CAKE)
MVP Portfolio Weighting: 20%
Cheesecake Factory (CAKE), the only restaurant on Exstein’s list, was in just six of the 11 malls that the analyst used for his control group.
He did note, however, that all six of the tenants, including the Cheesecake Factory, made these 11 malls destination-type properties, a key ingredient for any MVP mall.
While only anecdotal there is a high-end outdoor mall near where I live in Toronto that survives solely because it has a significant number of restaurant concepts on the property pulling in the shoppers. People have to eat.
Recognized by Fortune magazine as one of the “100 Best Companies to Work For” and the only restaurant in the bunch, it’s easy to see why CAKE is an important part of successful malls in America and a big reason to own its stock.
Stocks to Buy Now: Lululemon Athletica inc. (LULU)
MVP Portfolio Weighting: 15%
I wrote about it being a takeover target in early March. Since then Lululemon (LULU) stock has actually dropped a couple of bucks, making it even more attractive to investors who believe, as I do, that it is an ideal match for some of the big players in apparel like Under Armour Inc (UA), Nike Inc (NKE) or VF Corp (VFC).
In January, LULU upped its Q4 guidance suggesting that CEO Laurent Potdevin continues to be the right person at the top of the company and a big plus for anyone considering a buyout.
Stocks to Buy Now: Nordstrom, Inc. (JWN)
MVP Portfolio Weighting: 10%
A good portion of Exstein’s report centers on a department store’s ability to play an essential role in the distribution of up-and-coming brands.
Nordstrom (JWN), he suggests, is in 79% of those MVP malls — accounting for 62% of its total store footprint. As long as these malls continue to do well, there’s a good chance Nordstrom will tag along for the ride.
I’d put JWN’s weighting a little higher, but concerns about department stores raised by some retail experts in recent months have me dialing down its investment.
Stocks to Buy Now: Tiffany & Co. (TIF)
MVP Portfolio Weighting: 5%
With LVMH given such a big weighting, there’s absolutely no reason to do the same for Tiffany (TIF) stock, especially given it had what management termed a “disappointing” year.
Now down 16% over the past year, and 36% off its five-year high of $110.60, now’s a good time to take a position in the iconic brand, which traded about this same level almost three years ago to the day.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
