Nordstrom, Inc. (JWN), Macy’s, Inc. (M), Dollar Tree, Inc. (DLTR) – Christmas in July: The Companies to Buy Now

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Whether you are a ditsy shopper who waits until the very last minute or the uber Martha Stewart who bought all the gifts in a previous lifetime and have already wrapped them in color coordinated paper with name tag attached ( if you are, I hate you already), now is the time to think about holiday retail.

Some stores will begin the run up to the holidays as early as August 1, so there’s no time to lose in making gains. Three retailers that cover high end to lower end should perform well and they are: Nordstrom, Inc. (NYSE:JWN), Macy’s, Inc. (NYSE:M), and surprisingly, Dollar Tree, Inc. (NASDAQ:DLTR).

The best in customer service

Specialty retailer Nordstrom, Inc. (NYSE:JWN) has a low-end kicker with its 124 Nordstrom Racks, off price stores attracting the budget challenged aspirational shopper, and its full price stores carry the brands high-end shoppers covet.

The stock hit a 52 week high of $62.10 on July 5 and is trading at a trailing P/E of 17.23 with a 1.90% yield. It has regularly raised the dividend over the last four years, giving it a 17.47% dividend growth rate. The payout ratio is 31%. Just in February, Nordstrom, Inc. (NYSE:JWN) announced an $800 million share buyback to be paid for with cash on hand and raised the dividend by more than 10%.

Operating margin at 10.81% is better than rival Saks‘ 4.54% and even Macy’s, Inc. (NYSE:M) 9.70%. The PEG is 1.39 and price/book is 6.30.

Revenue and earnings per share have grown steadily since 2010 from total revenue of $9.42 billion in 2010 to $11.71 billion in 2012 and earnings of $2.52 in 2010 to $3.33 in 2012. With two quarters reported so far, Nordstrom looks on track to bring in close to $13 billion in total revenue and $4.30 in total EPS for 2013.

Is it just the return of the high end shopper that is helping Nordstrom, Inc. (NYSE:JWN)? Partly that, but the company has embraced technology with its e-commerce site Haute Look, and its use of iPads and tablets on the sales floor to order inventory from another store to help a customer or expedite check out.

Corporate governance risks are low in all categories for an overall score of 1, the best. This is important when you have legacy family members involved with a company that could skew shareholders’ rights. Not so at this 112-year-old company which still has several Nordstroms in executive positions including Blake Nordstrom, Inc. (NYSE:JWN) as CEO, but shareholders’ rights are highly respected. Various Nordstrom family members own 18 million shares for close to a 10% stake.

It has also not succumbed to the ever-present danger of family-run companies, doing things just like dear old Granddad. Its willingness to be fashion and future-forward and its unassailable reputation for the finest in customer service and commitment to local communities and its employees (who receive above average pay and benefits for retail) assured its listing in Motley Fool’s 25 Best Companies in America for 2013.

The company is expanding at a reasonable 10% annual pace and currently has 248 bricks and mortar stores in 33 states.

A dollar at a time

Dollar Tree, Inc. (NASDAQ:DLTR) is also hitting 52-week highs. The chain of 4,671 stores in 48 states in the U.S. and Canada offers merchandise at a flat price of a dollar. The PEG is 1.01 and it trades at a forward P/E of 16.21 and a price/book of 6.70. Operating margin is better than Nordstrom, Inc. (NYSE:JWN) and Macy’s, Inc. (NYSE:M) at 12.59%.

Although it doesn’t pay a dividend, its growth is worth it as analysts expect 18.33% five year EPS growth. However, Standpoint Research downgraded it from Buy to Hold on July 2. This may reflect valuation concerns with the stock having run from $37.12 in November to a high of $57.00 on July 5.

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