Two recent news stories about the retail industry caught my attention. Both were about retail stocks reaching 52-week highs. The first originally appeared at TheStreet.com, picking six small cap retail stocks including Dick's Sporting Goods (NYSE:DKS), Big Lots (NYSE:BIG) and Gymboree (Nasdaq:GYMB). I found these odd choices as both Dick's and Big Lots have market caps in excess of $3 billion. I guess they consider them jumbo small caps. All six were at 52-week highs. The second article was from Bespoke Investment Group, which indicated that over half of the 31 retailers in the S&P 500 are trading at 52-week highs. It got me to wondering if there's any value left in retail.
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Rankings
I took the 31 retail companies in the S&P 500 and multiplied their forward price-to-earnings ratio, price-to-book, price-to-sales and price-to-cash flow ratios together. The 10 stocks with the lowest result are listed in the tables below. Three are actually trading within 2.5% of their 52-week highs. Yet relative to the entire group, they do provide some value for investors. Is it enough to merit buying any of them? Let's have a look.

The Top 5

Company Forward P/E P/B P/S P/CF
GameStop (NYSE:GME) 7.5 1.3 0.4 5.5
AutoNation (NYSE:AN) 11.7 1.4 0.3 9.2
Macy\'s (NYSE:M) 12.8 2.0 0.4 4.8
JC Penney (NYSE:JCP) 17.6 1.7 0.4 5.2
Best Buy (NYSE:BBY) 12.9 2.6 0.4 6.9

Video game retailer GameStop tops the list and with good reason. Investors are concerned the company is building a network of stores that will be obsolete once digital distributors like Steam and OnLive capture a loyal online gaming audience. They wonder if GameStop is the next Blockbuster (NYSE:BBI). It's a valid question but one that investors won't face for several years at least. In the meantime, although same-store sales declined by 7.9% this past year, GameStop managed to deliver $2.25 in diluted earnings per share in fiscal 2009 and expects at least $2.58 a share in 2010. Confident of its future, it announced in January it was buying back $300 million of its stock. Already, it's bought most of that and will most likely do more share repurchases with the $900 million in cash it will have by the end of fiscal 2010. While I'm not a fan of share repurchases (because companies overpay most of the time), I believe GameStop management realizes its stock is being unfairly punished (40% off 52-week high) and that now is an opportune time to invest in its shares. Of the first five, I'd say GameStop is the value play of the bunch.

Tier 2

Company Forward P/E P/B P/S P/CF
Sears Holdings (Nasdaq:SHLD) 32.4 1.4 0.3 8.5
Target (NYSE:TGT) 12.9 2.6 0.6 7.0
Lowe\'s (NYSE:LOW) 15.1 1.9 0.8 8.7
Genuine Parts (NYSE:GPC) 14.5 2.5 0.7 7.9
Staples (Nasdaq:SPLS) 14.2 2.6 0.7 8.3

What can you say about Sears Holdings that hasn't been said already? Sears Chairman Eddie Lampert has tried everything to make Sears a player in retail and even though its fourth quarter was a home run, the company has a lot of work ahead of it to make existing stores more productive at growing same-store sales. I don't see it happening in 2010, but you can be sure we'll hear about it in a 13-page letter if the company succeeds. Of the remaining four, I will pass on Staples because I find its stores incredibly bland and boring. I'll pass on Genuine Parts even though I tend to agree with Goldman Sachs' recent assessment that the auto parts retailer will grab market share in 2010 and 2011. Lowes should have a decent year in 2010 as people start spending on their homes once again. Nonetheless, I'll pass.

Target Will Rebound
In InterBrand's 2010 report on U.S. retail brands, Target's $25.5 billion brand value was second only to that of Wal-Mart (NYSE:WMT). InterBrand's brand represents approximately 47% of its total enterprise value. This compares favorably to Staples at 31% and Lowes at 18%. Most importantly, it increased by 49% this past year, according to the company. Highlights of the report include a favorable opinion of its private label brand Up & Up, the purchase of the Smith & Hawken name and an ongoing ability to differentiate its soft goods product offerings from its competitors. This should help turn around same-store sales as the economy continues to improve. Target operates like Sears wishes it could. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

Bottom Line
If I could only pick one of either GameStop or Target, I'd go with the video game retailer simply because of its cash-to-assets ratio, which is 18% compared to 5% for Target. But they both present reasonable value at a time when retail stocks clearly aren't on sale.

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