Macy's, Inc. M stock had a nice breakout to the upside recently, but has pulled back in the last several sessions. Is this an opportunity to sell ahead of more downside, or buy ahead of even more upside?
Macy's has been one of the top-performing retail stocks this year –- rising from $53.40 on December 31, 2013, to as high as $63.10 last month. Since that peak, however, the stock has come back to earth slightly, by dropping down to just over $60 and hinting at a bit more downside still to come.
What The Bulls See…
The bullish contingent in Macy's stock loves the company's reasonable valuation metrics: a price-to-sales less than two, an enterprise value that eclipses its market capitalization and a PE-to-growth ratio of just under one (based on 2015 growth and EPS estimates). Strong cash flow and profit ratios are very attractive to prospective longs as well.
Finally, they love the stock's recent history of relative strength versus the market, the last two weeks notwithstanding.
What The Bears See…
The bears in the Macy's arena note that the company's balance sheet has been turned upside down, with a debt-to-equity ratio of 142.42 percent.
Other than that, however, Macy's does not leave a lot for the bears to attack. Technically, the most recent selling may be taking the stock below the first support at $60.60, but that may only lead to a drop to the next support level at $59.76.
If that level fails, though, the bears will be emboldened and likely willing to start selling rallies.
Overall…
If you believe in the old Wall Street rule of buying strong stocks on temporary weakness, Macy's may be the stock for you. Technicians would have long side entries being made on this dip, but as close to support as possible in conjunction with oversold RSI and/or %R readings.
Disclosure: At the time of this writing, Tim Thielen had no position in the equities mentioned in this report.
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