5 Small-Cap Value Stocks Hedge Funds Love

3. Macy’s, Inc. (NYSE:M)

Number of Hedge Fund Shareholders: 42

Hedge fund ownership of Macy’s, Inc. (NYSE:M) is up by 50% since Q3 2020, though it remains about 33% off the stock’s all-time high smart money ownership levels of 2016. David Tepper’s Appaloosa Management owns 7.91 million shares of Macy’s worth $193 million after selling off 22% of his holding during Q1.

While Macy’s, Inc. (NYSE:M) is making inroads on e-commerce sales and had a strong 2021 (revenue up 40%) compared to easier pandemic comps, the long-term outlook for the company’s 500 full-line stores remains murky. NIKE, Inc. (NYSE:NKE) cut ties with Macy’s and several other wholesalers last year as it pushes its direct-to-consumer model, which highlights the lack of moat that Macy’s business has. Macy’s shares have lost 35% of their value this year and trade at 0.21x sales and 3.42x earnings.

The ClearBridge Investments Small Cap Value Strategy likes Macy’s, Inc. (NYSE:M)’s progress on paying down its debt and growing its online sales, as revealed in the fund’s Q3 2021 investor letter:

“Meanwhile, Macy’s, an omnichannel retail organization that operates stores, websites, and mobile applications under the Macy’s, Bloomingdale’s, and Bluemercury brands, also had a strong quarter (+21.5%). Macy’s delivered strong second-quarter earnings, beating on earnings and revenue and raising guidance as the retailer continues to pay down debt and grow its digital business.”