This Overlooked Warren Buffett Stock Is Absurdly Cheap Right Now

Macy's is presented as inexpensive at about 10x earnings, with an estimated $9 billion real estate portfolio versus a roughly $6.7 billion market cap. Sales growth has turned positive, with Q1 fiscal 2026 net sales rising and comparable sales guidance raised to +0.5% to +1.2%. The company also yields about 3% after a 5% dividend increase, supported by more than $1.4 billion in trailing free cash flow.

Analysis

This is less a call on department store demand than a balance-sheet arbitrage. The market is effectively pricing Macy’s as a melting ice cube, while Berkshire’s involvement highlights that the residual asset value may be more durable than the operating earnings stream. If real estate monetization or even just stabilization of same-store sales persists, the equity can re-rate quickly because the current market cap leaves little room for the asset base to be ignored.

The second-order implication is pressure on weaker mall-linked names, especially those without owned real estate or with tighter liquidity. Kohl’s is the obvious public-market read-through: if Macy’s can defend traffic and harvest asset value while KSS lacks a similar real-estate backstop, KSS is more exposed to an eventual “bad asset / bad business” compounding loop. By contrast, value-oriented peers with fortress traffic and higher turns like WMT and COST are insulated; they may even gain share if mall spending remains rationalized rather than collapsed.

The key risk is that this is a value trap masquerading as a catalyst story. A modest sales inflection can help the stock for months, but if margins are pressured by promotions, inventory mismatch, or discretionary demand rolls over again, the market will focus back on declining unit economics and discount the real estate at a punitive haircut. The dividend is supportive, but it is not the thesis; if FCF normalizes lower from the recent peak, payout durability becomes the first thing investors question.

The contrarian take is that the opportunity is not in buying Macy’s outright so much as in owning the capital structure optionality. If management can sustain even low-single-digit comp growth, the equity can trade more like a liquidating asset with an operating call option than a conventional retailer. That suggests the market may be underpricing the likelihood of a partial rerating over the next 6-12 months, but overpricing the permanence of the current operating recovery.

Key Decisions for Investors

• Long M vs short KSS as a 3-6 month relative-value pair: M has the real-estate backstop and improving comps; KSS has weaker strategic optionality and worse downside if consumer softness returns.
• Buy M on pullbacks only, with a 6-12 month horizon and a tight stop if comps reaccelerate downward; the risk/reward is attractive while the stock still trades below estimated asset value.
• Use M call spreads for upside participation rather than outright equity if you want to express the re-rating thesis with defined downside; target a 2:1 to 3:1 payoff over 4-9 months.
• Do not chase WMT/COST on this headline; if anything, use them as defensives in a consumer slowdown basket while avoiding stretched entry points, since their valuation already reflects the quality premium.
• If M fails to hold recent sales momentum in the next two quarters, rotate out quickly—this is a catalyst-driven trade, not a long-duration compounder.