Macy’s Stock Rallies | Trading Game Plan July 16

macy' stock ralliesA comment from a hedge fund manager at a conference hit shares of department store retailer Macy’s (NYSE:M) like a lightning bolt Wednesday, sending the stock soaring.

Activist investor Jeff Smith, CEO of the hedge fund Starboard, said Macy’s should spin off its real estate into a separate company. He thinks the real estate is worth $125 a share, or $21 billion.

Macy’s was trading lower and below its 50-day moving average when Smith spoke at CNBC’s Delivering Alpha Conference in New York.

The stock instantly rose from near 66 to above 70, where it touched an all-time high.

Smith has taken a new position in the stock. He contends investors are undervaluing the real estate and that Macy’s should sell and lease-back its trophy properties.

A Reuters report in June noted unnamed hedge funds had approached management about selling off real estate holdings, including its flagship New York store.

Macy’s has already announced it is selling its 19th century, 13-story Pittsburgh building to Core Realty, which will turn it into a mixed use facility.

Macy’s had 2014 sales of $28.1 billion and operates 885 stores in 45 states under its flagship name along with Bloomingdale’s, Bloomingdale’s Outlet and Bluemercury.

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macy's stock rallies

Day Trading Game Plan: The SPY ETF Chart

SPY price action gave us the doji type day we expected after a healthy four consecutive higher closes. One more bullish day and that takes us to the top of the 2015 trading range.

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macy's stock rallies

Stocks to Trade | Thursday July 16, 2015

Pete’s Notes:

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Interesting Chart Lessons:

M | Macy’s Inc

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macy's stock rallies

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Macy’s Stock Rallies | Talk of Real Estate Spin-off

The hedge fund manager behind the epic Olive Garden presentation is going after Macy’s, and the stock just jumped.

Starboard Value’s Jeff Smith recommended Macy’s at the CNBC/Institutional Investor’s Delivering Alpha Conference at the Pierre Hotel in New York City.

This is the first time the activist investor is disclosing the position.

The stock jumped more than 4.8% after Smith announced the position.

Smith thinks Macy’s is undervalued. He pointed out that the retailer’s stock currently trades around $66 per share. Smith thinks it’s worth in excess of $125 per share.

On the surface, he explained, the stock appears to be “fairly valued.” It trades in line with its peers, but it doesn’t “tell the whole story.”

Smith pointed out some of the retailer’s valuable real-estate holdings (trophy properties such as Herald Square and high-end malls). Smith later added that his fund hired a real-estate consultancy firm to help them value the properties.

Adjusted for real-estate value, shareholders are getting the rest of Macy’s for less than 3x EBITDA, he said.

He also noted that Macy’s has a “highly valuable” credit-card business.

Smith is also the activist investor in Darden, the parent company of Olive Garden.

During the Q&A, Smith said that he’s always ready to get involved as an activist. He noted that he thinks that Macy’s is “receptive to looking into this opportunity.”

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