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Macy’s Stock Has Short-Term Upside But Long-Term Problems

Macy’s (NYSE:M) has been hammered and by this point, no one is surprised. Malls have been closed and retail sales have plunged.

Source: digitalreflections / Shutterstock.com

From the 2020 peak to the March trough, Macy’s stock fell 75% amid the novel coronavirus pandemic.

However, shares have been bouncing back with a force. The stock is up 45% from its 2020 low and 36.7% from its May low.

With America beginning to reopen, investors are wondering if now is the time to get back into M stock.

While Macy’s — and many others, including cruise and airline stocks — may have some serious short-term upside, their underlying business models will likely remain under pressure. That makes some of these names good for a possible trade, but perhaps not a great investment.

Breaking Down Macy’s Stock

On May 20, the company named a new CFO. The next day, Macy’s gave investors a business update. The retailer was supposed to report earnings around this time, but announced earlier in May that those results would be delayed until July 1st.

The business update was disappointing. Management expects fiscal Q1 sales of $3 billion to $3.03 billion, well short of expectations for $3.6 billion. Further, they expect an operating loss in the range of $905 million to $1.11 billion. That’s well below the $203 million in operating profit it had in the same period a year ago.

A few days later, Macy’s raised $1.1 billion in senior notes due in 2025. Perhaps more importantly though, the stock has been reacting favorably.

After the company’s business update, shares of Macy’s opened lower. However, in that same session, the stock reversed and closed higher by almost 6%. That was followed by an 18% rally a few days later, then a 19% rally in the following session.

While Macy’s has been under pressure the past few days, that isn’t exactly unexpected given the big surge it’s seen over the past few weeks. It’s led many to wonder whether Macy’s stock has hit a bottom.

chart of Macy's stock
Click to Enlarge
Source: Chart courtesy of StockCharts.com 

For now, bulls can stick with the name as it’s above the 50-day moving average. However, breaking back below this mark would put caution back on the table. That would put the $4.85 level back in play, followed by the $4.38 low that Macy’s stock hammered out over a three-day stretch in April.

On the upside, see if Macy’s can take out $7.20 resistance, then the 23.6% retracement at $7.55 and the May high near $7.70. Prices above that level will put the $9 to $9.50 area in play.

On Second Thought

Okay, so from a risk/reward perspective, Macy’s stock may be somewhat attractive. The technicals are starting to improve and investors are piling in and hoping that the bottom is in the rearview mirror.

From a trading perspective — similar to the outlook on General Electric (NYSE:GE) for example — there may be short-term upside. However, from an investment perspective, Macy’s is not the best stock to bet on.

Department stores were already under pressure. There’s a reason Macy’s was down 56% from its 2018 highs before Covid-19 came along. The stock was in fact down more than 70% from the 2015 high.

Simply put, it’s been a difficult business for everyone. Macy’s may not go down the bankruptcy road like peers J.C. Penney (NYSE:JCP), J. Crew and Neiman Marcus. But just because a business isn’t going to die out doesn’t mean it’s a worthwhile investment, particularly when its sales funnel has been shut off and operating income is a deficit.

To shore up its liquidity, Macy’s is taking on more debt, (which is unfortunate, as debt had been declining over the past few years). As a result, Macy’s stock is likely to survive, but there is concern on whether it will ever thrive. That’s as others, like Microsoft (NASDAQ:MSFT), Target (NYSE:TGT) and Twilio (NYSE:TWLO), continue to do better than ever.

I’d rather invest in those doing well than those that I hope will do well later down the road.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/moneywire/2020/06/macys-stock-has-short-term-upside-but-long-term-problems/.

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