In 1973, George Steinbrenner purchased the New York Yankees from CBS (CBS) for $10 million. After factoring out the cost of two parking garages, the net cost of the team was $8.8 million. Today, the New York Yankees are valued at $3.7 billion.
Were the Yankees mispriced? Not really, that was simply the price the market would bear at the time. It was impossible to know in 1973 what baseball franchises would be worth in 2017.
The Yankees question is relevant to the retail sector. We know the retail landscape has been forever changed by online shopping, but are these companies worth as little today as the market seems to believe?
Let's start with Kohl's (KSS) . This stock plunged yesterday after a disappointing earnings report. However, after falling nearly 10%, the stock fought back to fill the gap.
Despite this, Kohl's is in a confirmed downtrend, as evidenced by a series of lower highs (LH) and lower lows (LL). The path of least resistance for this stock is lower.
There is hope for Kohl's. A pilot program in Los Angeles and Chicago has Kohl's stores accepting Amazon (AMZN) product returns. By physically accepting Amazon's returns, Kohl's hopes to see an increase in foot traffic. Kohl's is benefiting from Amazon's lack of physical locations, something Walmart (WMT) will use to its advantage this holiday season.
Next up is Macy's (M) . This stock posted sharp gains yesterday despite a 3.6% decrease in same-store sales. There is little to like about this company in terms of its current direction.
However, Macy's reiterated that it continues to consult with Brookfield Asset Management in an effort to monetize about 50 properties. Among them is one square block in the heart of Manhattan, currently the home of Macy's flagship store.
That news was enough to send the stock soaring. On its weekly chart, Macy's has formed a bullish engulfing candlestick pattern (shaded yellow). The pattern indicates that Macy's should continue to rise.
How will these scenarios play out going forward?
Imagine if every Kohl's begins accepting returns for Amazon. The increase in foot traffic could be immense.
Of course, Amazon could easily enter similar agreements with other stores. It could end its agreement with Kohl's, or demand payment for customer flow. Kohl's is dealing from a position of weakness.
Macy's, on the other hand, controls its own fate. The company has a market capitalization of $6 billion. One could argue that the real estate currently occupied by the flagship store would be worth that much, if its use was optimized.
In theory, Macy's could build three or four skyscrapers in the square block between Broadway, Seventh Avenue, 34th Street and 35th Street. It could build a residential, business or entertainment complex.
Then just give it some time. We've already seen what that did for the Yankees.
This commentary originally appeared on Real Money Pro at 07:00 on Nov. 10. Click here to learn about this dynamic market information service for active traders.
