One Stock That Can Appreciate 40% Despite the Market Correction

2015 was a bad year for Macy’s (M) as declining sales hurt the stock. However, 2016 has been very different as Macy’s stock has managed to in the green despite strong market correction. While I’m currently bearish on the U.S. stock market, I think Macy’s will continue moving higher irrespective of the sentiments.

There are several reasons why I think Macy’s can continue its upward trajectory, which is why I am changing my best long idea from Spirit Airlines to Macy’s. Let’s take a look at the reasons why I think Macy’s will continue outperforming the market going forward.

Bad news baked in

Although Macy’s stock has recovered in the recent past, the stock is still down roughly 45% in the last few months.
A couple of bad quarters have pushed the stock down, however I think all the bad news has been currently baked in Macy’s price. The stock has fallen too much too fast and I think the worst case scenario is already been baked in Macy’s present share price.

Macy’s is currently trading at 10x trailing earnings and has a dividend yield of 3.8. Despite the recent rally, the stock is clearly cheap and the potential of its real estate assets makes it a steal at current levels.

Monetization of Macy’s real estate assets can unlock great value for shareholders in 2016. Macy’s real estate holdings are estimated to be valued at roughly $21 billion as opposed to the company’s current market cap of $12.8 billion. This clearly signifies that Macy’s is undervalued and the potential monetization of its real estate assets can unlock great value for its shareholders.

Macy’s recently announced that it hired Eastdil Secured to look for partnerships or JVs for some of its real estate. While it does not suggest that Macy’s will start selling its assets in the short-term, it still makes the stock a good investment.

Macy’s online presence has grown considerably over the last few years and the company can leverage this to sell its real estate assets. Macy’s can then use the cash to improve its online business so as to fight off competition from online retailers like Amazon.  Hence, Macy’s looks a good pick despite for 2016 the bearish market sentiment.


Given that the value of Macy’s real estate assets is about 45% more than Macy’s market cap, the stock clearly looks undervalued. Monetization of Macy’s real estate assets can unlock great value for shareholders. Macy’s can even use the cash generated from monetizing its real estate assets to improve its online business. For these reasons, I think investors add Macy’s to their portfolios despite the current market sentiment.
Published on Jan 21, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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