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3 Department Stores to Put in Your Shopping Bag

These stocks could see 20% upside in the next twelve months

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Best-Performing Stock — M Stock

m-stock-retail-stocksMacy’s (M) shareholders have had a spectacular year, up 42% over the past 52 weeks through Feb. 27. That’s 30 percentage points higher than its department store peers and 20 percentage points better than the S&P 500.

By any comparison, owners of M stock can’t complain. Since Terry Lundgren became CEO, M stock has achieved an annualized total return of 16.6% — 690 basis points higher than the SPDR S&P 500 (SPY). Lundgren has done well for himself over the past 11 years as CEO, and so have M stock holders.

M stock expects 2014 same-store sales growth between 2.5% and 3%. Its bottom-line earnings should be between $4.40 and $4.50 per share. While it is investing almost $1.1 billion in its business in 2014, it’s also laying off 2,500 employees in an effort to save $100 million annually.

It might seem odd that a company that generates almost $2 billion in free cash flow would need to downsize, but clearly investors liked the move. M stock is up almost 12% since the Jan. 8 announcement.

While you can’t go wrong owning M stock, I think there are several factors that make Nordstrom a slightly better buy. The biggest being that Nordstrom generates almost three times as much business on a percentage basis as Macy’s does from its online operations. The higher the price point, the higher the potential profit when selling online. However, Macy’s brick-and-mortar department stores actually did better than Nordstrom’s full-line stores in 2013.

On a valuation basis, despite the 42% gain over the past year, M stock is likely a better buy if you’re looking for a short-term momentum play over the next six months. Past that, JWN stock easily outperforms Macy’s.

Article printed from InvestorPlace Media,

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