Is it time to dive into department store stocks?
Analysts at Cowen brought that question to the forefront on Thursday by upgrading Macy's stock to outperform, citing the company's digital innovation efforts and calling it "an American icon reinvented."
Macy's shares finished trading up nearly 2% on Thursday. Kohl's stock followed suit, ending the day roughly 1% higher. Both stocks and fellow department store operator Nordstrom fell sharply in early Friday trading.
There may be a more lucrative way to play the evolving retail landscape, however, Tocqueville Asset Management portfolio manager John Petrides told CNBC's "Trading Nation" on Thursday.
"Investing in the big-box retailers has been a roller coaster for five or six years now, at least as the true emergence of e-commerce has hit mainstream," Petrides said.
"A more interesting way to play it that we have for those clients in our enhanced income strategy that are looking for yield has been through Simon Property Group, which owns essentially all the Class A malls across the United States."
The largest shopping mall owner in the country, Simon Property Group also boasts "best-in-class" management, a healthy balance sheet and a growing dividend, which it plans to reinstate after a pandemic-led hiatus, Petrides said.
"You have more diversification by playing the higher-quality mall REIT rather than the big-box retailer themselves," he said.
For those still interested in department store stocks, Miller Tabak's chief market strategist, Matt Maley, recommended steering clear of one name in particular.
"If you are going to go into these department store names, there's one you definitely want to avoid, I'm sorry to say, and that's Nordstrom," he said in the same interview.
Having broken well below its previously formed broadening top formation, Nordstrom is at a less-than-ideal juncture for investors, Maley said.
Macy's and Kohl's technical layouts looked much better, the strategist said.
"They have come down a little bit recently, but those are really only coming down because they've become overbought after a nice little rally in the second half of the summer," he said. "If these things can hold up here at these levels and start to rally back as we move into the fall, it's going to be positive."
Maley was watching the $20 level in Macy's — a former ceiling of resistance for the stock — and Kohl's 200-day moving average around $52.
If Macy's can bounce off the $20 level again, "that's going to be very bullish," he said. "It breaks below 20, then you bail on the idea."
Macy's began trading around $21.87 on Friday.
In the case of Kohl's and its 200-day moving average, "if it breaks below that, that's when you'd want to exit the name," Maley said. "But right now, the stocks look pretty good and if they can bounce off those levels one more time, it could be a nice rally into the end of the year."
Kohl's began trading just above $54 a share on Friday.
Disclosure: Petrides, Petrides' family and certain Tocqueville clients own shares of Simon Property Group.