What happened

Shares of Macy's (NYSE:M) were moving higher Monday on a broader gain among retail stocks, even though there was no obvious reason for the sudden surge.

There were two possible causes for the gains. First, investors are fleeing to safety amid fears of rising interest rates and a plunge in high-priced tech stocks. And few sectors are as cheap as traditional retail, especially with consumer confidence near all-time highs. The second reason is enthusiasm for a strong holiday season, which unofficially kicks off Nov. 1. Target, in a sign of its bullishness about the holiday season, is offering free two-day delivery with no minimum or membership fee through Dec. 22. 

The wave was strong enough to push Macy's shares as high as 8.4% today, and they were up 5.2% as of 2:54 p.m. EDT. The SPDR S&P Retail ETF (NYSEMKT:XRT) was up 0.9% at the same time despite the S&P 500 trading down 0.4%.

The exterior of Macy's flagship location in New York's Herald Square

Image source: Macy's.

So what  

The jump in traditional retail stocks also comes as Amazon shares plunged for the second day in a row after the company offered a weak sales growth forecast for its holiday quarter, perhaps a sign that efforts from brick-and-mortar retailers are having an impact on it. As for Macy's, the stock is undeniably cheap and well positioned heading into the holiday season. 

Shares trade at a P/E ratio of just 8, and the company offers a dividend yield of 4.7%. It has made smart moves this year, like acquiring the concept store Story, investing in tech by taking a minority stake in the retailer B8ta, and expanding its off-price Backstage concept, all of which could help it deliver better-than-expected results in the key fourth quarter.

Now what 

Macy's shares are up 35% this year after giving up some earlier gains, and the stock could pop again when it reports third-quarter earnings in November, as overall retail sales figures have been strong in recent months.

Analysts actually expect Macy's earnings per share to fall from $0.23 a year ago to $0.14, which could set a low bar for the company. Keep your eye on Macy's and the rest of the retail sector, because with the current bargain valuations and promising holiday season in the offing, this could be just the beginning of a breakout.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.