Shopping for Retail Stocks

NEW YORK ( TheStreet) -- One of the fascinating areas of the market this year, to me anyway has been the retail space. It's been the tale of some of the older, once well-established brands struggling, while new players emerge in the publicly traded markets.

We've seen the once formidable Best Buy ( BBY) struggling, and rumors persist that the company might be taken private. It has not been that long since it appeared as though the company had a solid position in the consumer electronics market with the demise of competitors such as Circuit City, CompUSA, and many smaller players throughout the years.

Meanwhile, RadioShack ( RSH), which was founded in 1899, is in a steep decline, as a matter of fact the market is pricing this stock as though it's going under. Speculative as it is, I believe that this "cigar butt", which is a net/net (trading below net current asset value) may have a puff or two left in it. I did not become interested in this name until it became a net/net, but this one is not for the faint of heart, only those with iron stomachs need apply.

Putting speculative capital to work here -- which many believe to be insane -- is not a bet that there will be a huge turnaround in the name, but rather that the shares have been punished too severely. I covered the JC Penney ( JCP) story earlier this week. That company has been around nearly as long as RadioShack.

Then there's a new breed of retailers, including Five Below ( FIVE), which went public over the summer. This chain is a huge hit with the teen crowd, and if it had been around in my youth, would have consumed a portion of my newspaper route and lawn mowing earnings. Expectations are still very high for FIVE, though, and it's priced accordingly, at about 50 times 2014 consensus estimates. Too rich for my blood at this point (says the guy who bought RadioShack...)

Then there's the re-tread, Restoration Hardware ( RH), which operates 73 specialty home furnishing stores, in the US and Canada, with a concentration in California (21 stores). The company was publicly traded before, beginning in 1998, prior to being taken private in 2008. I used to visit one of the New Jersey stores years ago, and it was the type of store that was fun and had some interesting merchandise. But I never purchased anything.

The company went public again early last month at $24, and was greeted with enthusiasm, finishing the first day of trading at $31.10. Since then, shares are up another 12%. Wednesday's third quarter earnings release, the first since going public again, was fairly positive with revenue meeting the consensus, but earnings exceeding the 4 cents estimate by 3 cents. The consensus estimate for 2014 ($1.30) implies a forward price earnings ratio of 27. I did own this in its former publicly traded life, but am not interested now.

Last but not least, there's the old time high end retailer, founded in 1919 that I once again have my eye on. That would be Saks ( SKS), a name I first purchased coming out of the 2008-2009 market debacle, when shares were priced for bankruptcy.

The company used that time to get its financial house in order, paying down debt, and strengthening its balance sheet. The company, with its $1.9 billion enterprise value, is real estate-rich, including its crown jewel Fifth Avenue New York store, which may be worth several hundred million dollars by itself, if not more. Saks currently trades at 1.33 times book value, and 21 times 2014 consensus earnings estimate.

I'd love to be able to take another position in this name at book value, and will be looking for that opportunity.

At the time of publication the author had a position in RSH.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
At the time of publication, Heller was long XXXX.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.