This Ridiculously Cheap Warren Buffett Stock Could Make You Richer

Berkshire Hathaway initiated a Macy’s (M) position in Q1, buying 3+ million shares as management’s “Bold New Chapter” strategy shows traction. Macy’s fiscal Q1 same-store sales rose 3.1%, and management raised full-year comps guidance to +0.5% to +1.2% from the prior -0.5% to +0.5%. Despite the stock’s strong 1-year run (+85.7%), the article argues valuation remains reasonable (P/E ~10 vs. S&P 500 ~32), suggesting upside if execution continues.

Analysis

The real signal is not that a legacy department store is “back,” but that management has likely extracted the low-hanging cost and mix benefits from the turnaround while the market is still pricing the business as structurally impaired. That creates a narrow, but real, window for continued multiple expansion if comp growth holds into back-to-school and holiday; however, after an 85%+ rerating, the next leg is far more dependent on gross margin durability than top-line headlines. If traffic is being bought with promotions or if luxury concepts are doing the heavy lifting, the thesis becomes fragile quickly.

Competitive dynamics are still mixed. A healthier Macy’s pressures weaker department-store peers most directly by proving that inventory discipline and store rationalization can work, which is bad for KSS and, to a lesser extent, JWN if they cannot match margin improvement. The second-order positive may actually accrue to mall landlords and vendors with cleaner exposure to surviving doors, while the losers are landlords with legacy underperforming boxes and suppliers tied to broad-based department-store replenishment volumes.

Berkshire’s purchase is a sentiment tailwind, not a fundamental catalyst. The more important catalyst path is the next two earnings prints: if same-store sales stay positive and guidance survives, the stock can keep rerating; if comp growth slips back toward flat and margins soften, the valuation likely mean-reverts faster than investors expect. The contrarian miss is that this may be a good business from a better baseline, but not necessarily a great equity at 10x earnings once the easy self-help is recognized.

Key Decisions for Investors

• Prefer a tactical long M only on pullbacks toward prior breakout levels, with a 1-3 month catalyst window into the next quarterly print; target is continued rerating, but stop if comps fade below low-single-digit growth or guidance is cut.
• Pair trade: long M / short KSS for a 1-2 quarter horizon to isolate execution quality versus sector beta; thesis breaks if KSS shows comparable comp/margin stabilization or if M’s gross margin compresses.
• Avoid chasing BRK.B on this news alone; the position is too small at Berkshire scale to read as high-conviction, so treat it as a weak sentiment indicator rather than a factor signal.
• Set an alert on Macy’s gross margin and inventory growth at the next release; if inventory rises faster than sales or promotional intensity increases, reduce long exposure immediately.
• For a more defensive expression, own XRT only as a basket-beta trade if retail sentiment broadens; otherwise, prefer single-name relative value because the upside here is idiosyncratic and limited.