Can News Flow Create Value?

Searching Google for “Retail Apocalypse” returns 8.8 million results (in .45 seconds!). For the better part of a decade the sector has been beaten up in the press. The headlines are not unfounded. Former staples of American consumerism such as Toys-R-Us, Radio Shack, and Payless ShoeSource are no longer, while many others struggle to find stable ground. The negative hype surrounding the Retail Apocalypse has created a fog around the whole sector and retail stocks have not been a popular pick amongst active money managers in recent memory.

Behind the retail apocalypse headlines are companies who have adapted to new market conditions, have strong balance sheets, and forward-thinking management. Looking into the fog, we see a shunned sector, overly beaten down valuations, and good potential to seek out value. Our Mount Lucas Focused Large Cap Value currently holds 4 retail names amongst its 36 total holdings. Some may view this as a high concentration of an unpopular sector for a focused strategy which holds no more than 40 stocks. However, our quantitative stock picking algorithms have no such opinions, they are programmed to seek value.

Below are the 4 retail names currently being held in the strategy, each picked for the portfolio on Sept. 22, 2017. Presented are price charts with selection date indicated and resulting price move, as well as headlines from the time preceding selection. Even positive news is tinged with negatively worded headlines. We believe this illustrates the headline fear and peer pressures that all human stock pickers face, as well as the benefit of a non-biased quantitative approach to value investing.

Mount Lucas Focused Large Cap Value Strategy Information

Macy’s (M)

Source: Google Finance
Aug/Sep 2017 Headlines:
  • Macy’s snags eBay exec, cuts 100 jobs amid management shake-up  (link)
  • Macy’s Sales Decline for the 10th Straight Quarter (link)
  • Macy’s to hire 80,000 workers for holidays, fewer than last year (link)
  • Macy’s And The Department Store Genre Are Not Too Big To Fail (link)

Kohl’s (KSS)

Source: Google Finance
Aug/Sep 2017 Headlines:
  • Kohl’s cutting retail floor space in move toward digital (link)
  • Is Kohl’s Making A Mistake Cozying Up To Amazon? (link)
  • Kohl’s & Macy’s Fall Despite Upbeat Q2 Earnings: Here’s Why (link)
  • Why Kohl’s Corporation (KSS) Stock Is the Best of the Worst (link)

Best Buy (BBY)

Source: Google Finance
Aug/Sep 2017 Headlines:
  • Best Buy shares plunge after company warns about gross margins (link)
  • Best Buy Could Lose You More Money (link)
  • Best Buy Has a Glaring Millennial Problem, Unlike Amazon (link)
  • Best Buy – The Retail Store Defying Gravity (What Goes Up Must Come Down) (link)

Gap, Inc (GPS)

Source: Google Finance
Aug/Sep 2017 Headlines:
  • 200 Gap and Banana Republic stores closing (link)
  • Gap Inc (GPS) Stock Can’t Defy Industry Headwinds Much Longer (link)
  • Gap CEO Says He’s ‘Drawing Line in Sand’ With Shift to Old Navy  (link)
  • Why You May Not Be Able to Shop Inside a Gap Store Soon (link)