Market Overview

A Coronavirus Department Store Pair Trade Idea To Mitigate Risk

Share:
A Coronavirus Department Store Pair Trade Idea To Mitigate Risk

Department store stocks and other shopping mall retail stocks already struggling to compete with Amazon.com, Inc. (NASDAQ: AMZN) and other online competitors have been decimated by COVID-19 related store closures.

Past U.S. recessions created long-term buying opportunities within the department store group, but traders may need to be a bit more creative this downturn to protect their investments.

Department Store Stocks

Berna Barshay, editor and research analyst at Empire Financial Research, on Monday discussed the outlook for department store stocks and why many of them aren’t obvious buy-the-dip opportunities.

A surge in department store credit default swap sales suggests hedge funds are growing increasingly concerned than many department stores may be unable to avoid bankruptcy. Hedge funds buy CDSs as a way to either hege a long position in a stock or establish a short position in a company in financial distress.

Fighting For Survival

One stock that appears to be in particularly dire financial straits is J C Penney Company Inc (NYSE: JCP). Barshay said missed debt payments are fueling rumors that a JCPenney bankruptcy could be imminent. Barshay said struggling department stores face an additional challenge in the current environment in that liquidation sales could be difficult even in the event of a bankruptcy. If store traffic doesn’t return, bankrupt retailers will have a difficult time selling off inventory as they close stores.

At the same time, Barshay said there are potential investment opportunities among clothing retailers as well. Desperate department store pricing cuts should benefit consumers and discount clothing retailer TJX Companies Inc (NYSE: TJX), she said.

“Longer term, if it can get its stores open and get people to come to them, discount clothing retailer TJX Companies (TJX) - which owns TJ Maxx, Marshalls, and HomeGoods - stands to emerge victorious from this mess as it substantially and affordably upgrades its inventory,” Barshay said.

Benzinga's Take

To limit risk in investing in TJX, traders can consider pairing it with a short position in JCPenney, which has said it's exploring a potential reverse stock split to maintain its NYSE listing.

If it's difficult to short JCPenney trading under 30 cents per share, Macy's Inc (NYSE: M) is still trading near $6 even though Barshay reported Macy’s one-year CDS sales spiked 700% over just a two-week stretch back in March.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Here's How Much Investing $100 In Target Stock Back In 2010 Would Be Worth Today

8 Retail Stocks To Put In Your Cart

Photo credit: Miosotis Jade (Own work), via Wikimedia Commons

Latest Ratings for JCP

DateFirmActionFromTo
Nov 2019B. Riley FBRMaintainsNeutral
Mar 2019B. Riley FBRMaintainsNeutralNeutral
Dec 2018CitigroupInitiates Coverage OnUnderweight

View More Analyst Ratings for JCP
View the Latest Analyst Ratings

 

Related Articles (JCP + TJX)

View Comments and Join the Discussion!

Posted-In: Berna Barshay CoronavirusAnalyst Color Long Ideas Short Ideas Top Stories Analyst Ratings Trading Ideas Best of Benzinga

Latest Ratings

StockFirmActionPT
BXSPiper SandlerMaintains23.0
BSVNPiper SandlerMaintains13.0
AUBPiper SandlerMaintains23.0
ARGXPiper SandlerMaintains300.0
ABTXPiper SandlerMaintains26.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com