Face-Off on Stocks: Macy's, J.C. Penney, Kohl's [Video]

The nation's three biggest department-store operators have been disproportionately pinched by the downturn in consumer spending. That's what happens when you're stuck in the middle of the retail-price spectrum.

As we saw in the retail recovery after the last recession, up-market and discount chains are benefiting at the expense of middle-market players. No surprise really, when assets like stocks and bonds rebound sharply, but the job and housing markets don't.

Retail stocks tend to be early cyclicals, meaning they rise ahead of other sectors in the early stages of economic recovery. That's part of what's creating some impressive results in the sector in general. With Black Friday less than two weeks away, retailers are expecting their best holiday selling season in years, but as recent quarterly results from Macy's (M), J.C. Penney (JCP) and Kohl's (KSS) show, stores will be walking a fine line between moving their inventory and indulging in profit-busting markdowns.

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Macy's has been enjoying success with its upscale Bloomingdale's chain and higher-margin private labels and exclusives, but whether its shares are still a bargain at these levels is a matter for debate.

Penney had a fire lit under its stock when activist investor William Ackman disclosed he took a large stake in the company, but that's also made the valuation versus fundamentals harder to figure.

Kohl's has been a dud of a stock, undeperforming the broader market by a wide margin over the last year. That's giving Kohl's the look of a bargain-basement steal, but whether shares are cheap -- or cheap for a reason -- remains to be seen.

For the bull and bear cases on Macy's, Penney and Kohl's, see the video above.