J.C. Penney shares, which tumbled 11 percent yesterday, will rally amid a rebound in consumer spending when concerns about the global economy subside, said Price, president of MFP Investors LLC. He said the retailer is trading for about half of its “intrinsic value.” He also likes Citigroup Inc. shares because they’re the cheapest among large U.S. banks, he said.
“As the economy improves and as uncertainty from our election and China and all the European issues go away, American consumers have enormous pent-up demand,” Price said in a “Bloomberg Surveillance” interview with Tom Keene and Sara Eisen. “It’s very early for European stocks.”
The U.S. is the most attractive stock market because of the strength of corporate balance sheets, low interest rates and valuations, according to Price, who made his reputation as a value investor in the 1980s by buying shares of beaten-down lenders and running some of the best-performing U.S. mutual funds.
The Standard & Poor’s 500 Index has rallied 16 percent this year and last week closed at the highest level since 2007 after Federal Reserve Chairman Ben S. Bernanke announced a third round of asset purchases to boost economic growth. The U.S. equity benchmark trades for about 14.9 times its companies’ reported earnings, compared with an average multiple of 16.8 from the past decade.
Price said that the outcome of the U.S. presidential election will help ease uncertainty among business owners who are holding off on major purchases until tax and government policies are clearer.
J.C. Penney dropped the most in four months yesterday after Chief Executive Officer Ron Johnson’s showcase of the stores’ new layout failed to inspire confidence in his remake of the 110-year-old retailer. The stock has lost 27 percent of its value this year.
Shares of the Plano, Texas-based retailer trade at 1.4 times its book value, below the average ratio since 1987 of 1.9, according to data compiled by Bloomberg.
Citigroup will have the ability to pay “nice” dividends in the future, said Price. The New York-based lender has a dividend yield of 0.12 percent, according to data compiled by Bloomberg. The bank trades at 7.7 times reported earnings, almost half the multiple for financials in the S&P 500.
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