This Overlooked Warren Buffett Stock Is Absurdly Cheap Right Now

Macy's is highlighted as inexpensive at about 10x earnings, with its market cap near $6.7 billion versus an estimated $9 billion of real estate holdings. First-quarter fiscal 2026 net sales rose and full-year comparable sales guidance improved to +0.5% to +1.2%, while the dividend yield is roughly 3% after a 5% payout increase. The piece argues Berkshire's buying reflects improving fundamentals and an asset-backed valuation case, though the article is mainly opinion-driven.

Analysis

The market is underpricing the optionality in Macy’s asset base, but the real signal is not the headline multiple — it’s that the equity is behaving like a distressed asset with a call option on a stabilizing operating business. If real estate monetization proves even partially realizable, downside becomes increasingly balance-sheet constrained, while any operating inflection can re-rate the equity quickly because the current valuation leaves little room for a normalization narrative. That asymmetry is what makes Berkshire-like buying meaningful: it suggests a patient capital sponsor sees liquidation value support, not just a cheap cyclical.

The second-order read-through is negative for legacy mall-exposed department store peers, especially Kohl’s, because Macy’s is demonstrating that scale plus owned real estate can outlast weaker operators even in a structurally challenged category. If consumer demand is merely stabilizing rather than structurally improving, capital will likely concentrate in the names with hard-asset backstops and dividend capacity, while weaker players face a higher cost of capital and less room to defend traffic with promotions. That dynamic can also pressure vendors and mall landlords that depend on a broad department-store footprint for anchor traffic.

The key risk is that the recent sales inflection proves tactical rather than durable. A 1–2 quarter improvement can easily be driven by inventory resets, promotion cadence, or easier compares; if comp growth rolls over again into the holiday season, the stock loses both the multiple support and the ‘turnaround’ narrative. The dividend is only a catalyst if free cash flow remains robust through the cycle; if operating cash flow normalizes lower, the payout becomes a levered signal of confidence rather than a margin of safety.

Key Decisions for Investors

• Go long M on a 3–6 month horizon into the next earnings print; thesis is asset-value support plus sales stabilization, with asymmetric upside if the market begins to price real estate optionality. Use a tight downside stop if comps or guidance roll over.
• Pair trade: long M / short KSS over the next 1–2 quarters. Macy’s has a stronger hard-asset backstop and better free-cash-flow coverage, while KSS remains more vulnerable to traffic weakness and multiple compression.
• Buy M Jan/Apr call spreads to express a rerating trade with defined risk. Best setup if you expect continued comp improvement and no deterioration in holiday guidance.
• For hedge funds with retail exposure, use M as a relative hedge against broader discretionary weakness: long M vs short XRT or a retail basket if you want to isolate balance-sheet- and asset-backed alpha.
• Take profits on a partial M long if the stock approaches an implied asset-value discount narrowing within 2–3 earnings cycles; the thesis weakens if the market starts to fully price liquidation value before operating momentum broadens.