Kiplingers Personal Finance

20 KIPLINGER’S PERSONAL FINANCE^ 05/2017

AHEAD

ratio of 14, based on analysts’ estimated
earnings for the fiscal year that ends
January 2018, and yields 3.0%.
Also strong in online sales is NORDSTROM
(JWN, $47), which collects about one-fifth
of its revenues from its excellent internet
site. The owner of 118 upscale depart-
ment stores generated $14.8 billion in
revenue in the fiscal year that ended
in January 2017, marking the seventh
straight year of sales gains. Nordstrom
shares, which have dropped 41% since
June 2015, are attractively priced and
yield an above-average 3.2%.
But the classic contrarian retailer is
MACY’S (M, $33). There’s no doubt that the department-store
chain, which also owns Bloomingdale’s, has been having
problems, suffering eight straight quarters of sales de-
clines at stores open for at least a year. (So-called same-
store sales are an important barometer for retailers.)
Earnings per share dropped 38% from the fiscal year
ending in January 2016 to the year ending in January
2017, and 66 stores closed, with more shutting this year.
Nevertheless, Macy’s has a lot going for it, including strong
online sales, which represent 18% of total revenues. With
about 900 stores, Macy’s has the most powerful brand in
retailing today, valuable real estate and a tantalizing divi-
dend yield. The stock has fallen by more than half in eight
months, so the dividend yield has jumped to 4.5%. Recent
cost-cutting should pay off, and the stock’s P/E, based on
expected earnings for the year ahead, is about 10. Macy’s is
indeed risky, but it also provides a rare bull-market bargain.
If you invest in Macy’s, you are betting on profits in-

creasing from cost-cutting and smart mer-

chandising. But you can invest in stronger

retailers, whose profits have been nearly

f lat but reliable. The best example is Wal-

Mart, which has more than 10,000 stores

around the world and more brick-and-

mortar revenues than all U.S. e-commerce

sales combined. Wal-Mart’s sales crept up

3% in the fiscal year that ended in January

2017—not bad for such a behemoth. But the

big reason to buy the stock is its dividend,

which has risen 44 years in a row and, at

the current share price, produces a yield

of 2.9%. Think of Wal-Mart, which has a

gorgeous balance sheet, as an increasing

annuity. In 2006, it was paying a dividend of 30 cents a

year; today, it’s $2.04. One warning, though: Wal-Mart and

other large retailers would suffer from tariffs or a border

tax on imported goods from countries such as China and

Mexico. That would boost prices for customers, and Wal-

Mart might lose sales.

Grocers are retailers, too, and a contrarian choice that

merits attention is WHOLE FOODS MARKET (WFM, $31). The largest

natural-foods grocer in the country has suffered, with

five straight quarters of same-store sales declines, as tra-

ditional chains have increased their offerings of organics.

The shares are down by half since October 2013, but the

company has a strong balance sheet, and it continues to

add stores. This is one of those “faith-based” investments

that I like. No one can know when Whole Foods will turn

around, but it has a powerful name and loyal customers,

and I have faith that it will make a comeback. Meanwhile,

you can own it for the price you would have paid in 2005.

And two more: LULULEMON ATHLETICA (LULU,

$65), designer and retailer of yoga-style ca-

sual clothing, is more expensive than the

others here, trading at 27 times estimated

year-ahead earnings. But it’s still a bargain

when you consider that Lululemon’s sales

and earnings are projected to rise at an an-

nual average of 16% for the next three years,

according to Zacks Investment Research.

And TIFFANY (TIF, $92), whose jewelry sales

have suffered from a weak global economy,

represents a great wager on a revival.

All of the companies I have recom-

mended should be able to navigate the

tricky currents of e-commerce. A smart

strategy is to invest in two or three of

these stocks. ■

Macy’s has the

most powerful

brand in retailing

today, valuable

real estate and

a tantalizing

dividend.

JAMES K. GLASSMAN, A VISITING FELLOW AT THE AMERICAN

ENTERPRISE INSTITUTE, IS THE AUTHOR, MOST RECENTLY,

OF SAFETY NET: THE STRATEGY FOR DE-RISKING YOUR

INVESTMENTS IN A TIME OF TURBULENCE. OF THE STOCKS

MENTIONED, HE OWNS SHARES OF AMAZON.COM.

8 RETAILERS FOR SAVVY SHOPPERS

Eclectic Mix

Glassman’s picks encompass a wide variety of retailers: department-store chains,

specialty firms, a food retailer and, of course, internet giant Amazon.com.

Amazon.com AMZN $845 $403.2 $136.0 70% 110 0.0%

Lululemon Athletica LULU 65 9.0 2.3 19 27 0.0

Macy’s M 33 10.1 25.8 18 10 4.5

Nordstrom JWN 47 7.9 14.8 22 16 3.2

Tiffany TIF 92 11.5 4.0 6 25 2.0

Wal-Mart Stores WMT 71 218.0 485.9 3 16 2.9

Whole Foods Market WFM 31 9.8 15.8 NA 23 1.8

Williams-Sonoma WSM 49 4.3 5.1 51 14 3.0

Company Symbol

Share

price

Market

value

(billions)

Annual

revenue

(billions)*

% revenue

from online

sales

Price-

earnings

ratio†

Dividend

yield

Through February 28. *Based on revenues for the past 12 months. †Based on estimated earnings for the next four quarters.

NA Not available. SOURCES: eMarketer, Yahoo, Zacks Investment Research.