J.C. Penney Company, Inc. (JCP) Looks Good for the Long Term

For Investors

Despite disappointing (to say the least because they are actually pathetic) quarterly results, all is not lost for J.C. Penney if one looks at it in the long term.

Small investors who are invested in the stock will definitely find solace in the repeatedly professed faith in Johnson’s strategy expressed by hedge fund manager Bill Ackman. According to Ackman, whose Pershing Square Capital Management is Penney’s top shareholder, it will take Johnsons’ strategy a few years more to produce positive results.

In addition, there is a lot that can be read in the fact of increase in cash and cash equivalents despite poor results. From $525 million at the end of Q3, it went up to $930 million. While matters will become clearer only after studying the annual report in detail, this clearly suggests that the company’s new plan seems to be working in some way. Evidently, better inventory management seems to be working; inventory, which was $2.9 billion at the end of the previous fiscal year, dropped to $2.34 billion this time. Moreover, there are no significant scheduled debt repayments until 2015.

On the technical side, the stock has a short interest of 30.91% that is almost 60 million shares representing more than six days’ average trading volume. This indicates that the stock can potentially go up in the short term when short sellers try to cover their positions.

All said and done, whereas increased liquidity, the drop in inventory and short selling suggest buying J.C. Penney if it does open at the level it was trading in afterhours on Feb. 27, it is still a risky game.

There is also the matter of the pending lawsuit that Macy’s has filed against J.C. Penney, its archrival, over exclusivity rights to Martha Stewart Stores. There is a strong possibility of Penney winning the lawsuit. This could be a big plus for the company as Martha Stewart is a big traffic driver, which can boost Penney’s sales.

The fact that the results revealed an even weaker picture than the 27.8% fall in same-store sales that the analysts were predicting has put a huge pressure on Johnson.

If you have a long term horizon, buy JCP only if you believe that Penney will win the lawsuit and have faith in CEO Ron Johnson’s ability to turn it around into a profit making company.

The article This Stock Looks Good for the Long Term originally appeared on Fool.com and is written by Sujata Dutta.

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