Analysis: JWN KSS AMZN

The U.S. equity markets are trading higher Monday with the Dow Jones Industrial Average and S&P 500 leading over the tech-heavy Nasdaq. This action continues last week's trend of investors generally preferring lower multiple sectors compared to the higher priced and crowded trades within technology and internet stocks. One group that fits current investor tastes for low multiples are the department store chain stocks, and our two, Nordstrom (JWN) and Kohl's (KSS) , are picking up where they left off Friday following Nordstrom's big upside surprise second quarter beat which you can read about here.

After reflecting more on Nordstrom's tremendous quarter over the weekend, we are compelled to raise our price target from $60 to $66, which reflects about 17.5 times fiscal year earnings multiple. We recognize that we are placing a higher multiple than others on the street - many analysts remain constructive on JWN -but we believe our expansion is justified. Nordstrom's results exemplified how past generational investments have begun to pay off, and the incredible 4% same-store sales growth Nordstrom posted this quarter demonstrated better execution and improved inventory management. Plus, we believe the market should place a greater premium on Nordstrom's digital capabilities as second quarter digital sales increased by 23% and represented 34% of total sales in the quarter (up from 29%) a year ago. We think the market should gradually become more receptive to Nordstrom's digital prowess, thereby applying a greater market multiple than what currently shares command.

Kohl's is trading more than 2% higher on Monday, making a climb back towards its 52-week high. This move comes on the eve of its second quarter earnings report with current consensus expectations calling for $4.271 billion in sales, same store sales growth of 2.6%, and earnings per share of $1.64. When the company reports tomorrow, we look to hear how traffic trends are doing relative to the many initiatives the company has in place, and we are interested to see if there were tailwinds from strength in the athletic/active/wellness category. Lastly, we know management was tight-lipped last quarter about its key pilot initiative with Amazon (AMZN) , but we think there is an opportunity for upside should management decide to expand on its conversation during its conference call at 9:00 a.m. ET Tuesday.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long JWN, KSS, AMZN.