BP plc (ADR) (BP), Chesapeake Energy Corporation (CHK), J.C. Penney Company, Inc. (JCP): What to Look for When Going Bargain Hunting in the Stock Market?

Moreover, the expected rise in production of natural gas in the U.S. is likely to keep the price from rising to higher levels recorded in the preceding years. Nonetheless, the company remains profitable. In 2012 its operating profitability (after adjusting for the goodwill provisions) reached 13.8%. Moreover, the company’s revenue rose 5.9% (year over year).

On the other hand, the company’s cash flow remains unfavorable with a negative free cash flow and only $287 million in cash. The company has many assets to sell in order to payoff its debt, but the company’s natural gas operations might put it in dire situation again in the future.

J.C. Penney Company, Inc. (NYSE:JCP)

Lately, this company has been in the news over the stepping down of its CEO, Ron Johnson, and the return of former CEO Myron Ullman to the helm. I always thought that bringing back a former CEO is like getting back to your former girl/boy friend — very soon you remember why it didn’t work in the past.

Besides this news, a close look at the company’s financial situation reveals the problems it faces besides in court. The company’s revenue dropped nearly 25% in 2012 (Y-o-Y), and its operating loss was nearly $1.3 billion. Moreover, not only the company’s FCF was negative in 2012, but also its operating cash flow was. This is another bad sign for the company.

J.C. Penney Company, Inc. (NYSE:JCP)’s cash also dwindled 40% last year (compared to 2011). The few positive notes worth mentioning are: the company has assets to sell that might help it float above water; the retail industry is slowly growing so the industry it works at is slowly expanding. But since the company is losing and its cash flow situation is dire, the risk vs. benefit might not be worth it.

The bottom line

I have reviewed in this post three companies: Two from the oil and gas industry and one from retail. Based on the questions I laid out, it seems that BP is a company worth considering for investment. Chesapeake Energy Corporation (NYSE:CHK) might not be  worth entering (unless the company moves out of the natural gas market), and J.C. Penney Company, Inc. (NYSE:JCP) doesn’t seem worth investing when considering the risk-return trade off.

Lior Cohen has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.