Nordstrom vs. peers
Nordstrom, Inc. (NYSE:JWN) is a higher-end option than Macy’s, Inc. (NYSE:M) and J.C. Penney Company, Inc. (NYSE:JCP) for shoppers (although Macy’s does own Bloomingdales). The current economic environment has led to success for Nordstrom as most wealthy individuals have increased their annual income through stock and real estate investments. That said, Macy’s has also performed well over the past five years. Below is a chart comparing stock performances and profit margins for all three companies:
It should come as no surprise that J.C. Penney owns the highest short position of 23.5% versus 3.6% for Nordstrom and 2.7% for Macy’s. J.C. Penney is a high-risk investment since no one knows if its turnaround (back to its original form) will be successful.
J.C. Penney Company, Inc. (NYSE:JCP) also doesn’t offer any yield, whereas Nordstrom and Macy’s both yield 2.1%. Unless you’re gambling, J.C. Penney should be removed from investing consideration. That said, if J.C. Penney is successful with its turnaround, then the upside potential is significant. J.C. Penney has suffered from two consecutive years of revenue and earnings declines, and same-store sales dropped 16% in the first quarter year-over-year. J.C. Penney is attempting to win back its former customers through an ad campaign.
Macy’s, Inc. (NYSE:M) has consistently improved its revenue and earnings over the past several years, and it caters to both high and middle-income consumers with Macy’s and Bloomingdales. This diversification combined with quality management should lead to long-term success. However, keep in mind that retail doesn’t hold up well at all if the economy tanks.
Conclusion
Nordstrom, Inc. (NYSE:JWN) is an extremely well-run operation with strong future potential. At the same time, the stock declined more than 50% during the financial crisis of 2008 and 2009. If a similar environment were to present itself in the future, then Nordstrom would be far from a safe investment. If you’re goal is capital preservation and small yet safe gains, then Nordstrom should be avoided.
If you believe that the stock and real estate markets will hold their own, and that the job market will improve, then Nordstrom should be strongly considered as an investment option. It’s one of the best retailers in existence.
The article Risky and Exciting Retail Investments originally appeared on Fool.com and is written by Dan Moskowitz.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
