BOSTON (TheStreet) -- Economic pessimism is hurting retail stocks as they head into the critical back-to-school shopping season.
Most investors are wary of these stocks, but some money managers are scooping up shares. John Paulson of
Paulson & Co.
and David Tepper of
, who both earned windfalls on financial investments in 2009, added retail bets during the second quarter, according to Securities and Exchange Commission filings.
Paulson initiated a position in
General Growth Properties
of 6.6 million shares, equaling 2.1% of shares outstanding. Other hedge funds are flocking to General Growth.
Pershing Square Capital Management
, run by Bill Ackman, owns 7.6% of the float. Its bet was unchanged in the second quarter, but
Blue Ridge Capital
, headed by John Griffin, increased its stake by 500,000 shares to 2.4%. Hedge funds
Och-Ziff Capital Management
also increased their equity stakes in the latest reporting period.
General Growth is a real estate investment trust that owns shopping malls in 44 states. It filed for bankruptcy in April 2009 and expects to reemerge in October with fewer debt obligations. General's second-quarter loss shrank by 26% to $118 million, or 37 cents a share, from $158 million, or 51 cents, a year earlier. Revenue inched up 1.7% to $822 million. The gross and operating margins widened from 29% to 34%. Tenant sales at comparable properties gained 7.8% in the quarter, a positive sign for future rental rates.
Of analysts covering General Growth, none advise purchasing its shares, two recommend holding and one suggests selling them. They trade at a sales multiple of 1.4 and a cash flow multiple of 6, 79% and 65% discounts to financial services industry averages. The stock has a beta value of 4.1, which means it tends to magnify market swings.
Bruce Berkowitz, whom
named best U.S. stock mutual fund manager of 2009, owns General Growth debt in a position with an estimated value of $2 billion.
David Tepper initiated a position in
of more than 4.9 million shares, equaling 1.2% of shares outstanding. Other hedge funds are long Macy's shares.
, run by Lee Ainslie, is the fifth-largest investor with 3% of the float. Ainslie added 254,243 more shares to his bet in the latest reporting period. Quantitative-oriented
D.E. Shaw & Co.
enlarged its stake to 2.2% in the second quarter.
more than doubled their bets to 1% and 0.9% of shares outstanding, respectively, in the latest quarter.
Macy's is a high-end department store chain that also owns the Bloomingdale's brand. Second-quarter profit multiplied to $147 million, or 35 cents a share, from $7 million, or 2 cents, a year earlier. Revenue increased 7.2% to $5.5 billion. The operating margin widened from 5.5% to 6.7%. Same-store sales increased 4.9% during the second quarter. They gained an impressive 7.3% in July. Online sales, included in same-store figures, soared 28% in the second-quarter and jumped 22% in July. Macy's has $1.2 billion of cash and $8.1 billion of long-term debt.
Of researchers following Macy's, 10, or 59%, advocate purchasing its shares and seven recommend holding them. None rate Macy's a "sell." A median target of $26.15 suggests a return of 24%. Bullish forecaster
predicts a rise of 56% to $33.
expects a gain of 47% to $31. Macy's stock sells for a forward earnings multiple of 9.5 and a cash flow multiple of 5.4, 35% and 68% discounts to peer averages. Its PEG ratio, a measure of value relative to predicted long-run growth, of 0.1 signals a 90% discount to estimated fair value.
-- Reported by Jake Lynch in Boston.
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