Macy’s, Inc. (M): This Stock Could Benefit From J.C. Penney Company, Inc. (JCP) and Sears Holdings Corp (SHLD)’s Decline

Two of America’s biggest middle-income department stores are struggling. Sears Holdings Corp (NASDAQ:SHLD) is slowly bleeding cash, while J.C. Penney Company, Inc. (NYSE:JCP)‘s future remains highly uncertain.

If there’s one company that stands to benefit, it appears to be Macy’s, Inc. (NYSE:M). Although Macy’s, Inc. (NYSE:M) has vastly outperformed both Sears and J.C. Penney over the last year, further upside may lay ahead.

J.C. Penney’s failed turnaround plan

J.C. Penney Company, Inc. (NYSE:JCP)’s current predicament can mostly be traced back to its (now former) CEO Ron Johnson. Although J.C. Penney’s business was — at the time Johnson arrived — slowly fading into irrelevancy, the company was still profitable.

But Johnson changed all that. He drove away the store’s key customers by eliminating coupons and axing many popular brands. At the same time, he spent roughly $1 billion in a single year, mostly through store renovations.

Johnson stepped down in April, and the store’s old CEO, Mike Ullman, has returned. Discounts are back, and J.C. Penney Company, Inc. (NYSE:JCP) just unveiled its newly renovated home goods department.

So there’s reason to be hopeful. I myself own shares, along with legendary fund manager George Soros. But that isn’t to say that the investment isn’t without its risks.

The damage done over the last year might have been too much. At the same time, J.C. Penney Company, Inc. (NYSE:JCP)’s new home goods are more expensive than its traditional customers are used to, and a judge could still force the store to stop selling its Martha Stewart-designed products.

Sears might be worse off than J.C. Penney

Not even Sears Holdings Corp (NASDAQ:SHLD)’ bulls see much hope for the company’s actual business operations, instead focusing on the value of the company’s assets — in particular, its real estate.

Bruce Berkowitz’s Fairholme Capital is a major Sears Holdings Corp (NASDAQ:SHLD) shareholder. Specifically, as of the end of March, it represented more than 12% of his fund — about $1 billion of stock. In a presentation he gave last year, Berkowitz argued for Sears Holdings Corp (NASDAQ:SHLD)’ stock mostly on the value of its real estate holdings.

But not everyone agrees with Berkowitz. Analysts at Credit Suisse reiterated their Underperform rating last month after Sears Holdings Corp (NASDAQ:SHLD) reported a disastrous quarter. In their note, Credit Suisse raised the obvious question — if Sears’ business is losing money, but its assets are so valuable, then why does the company continue to operate?