J.C. Penney Company, Inc. (JCP): Why Hedge Funds Believe

It Could Be Bon-Ton

Of course, things could be worse for J.C. Penney. It could be The Bon-Ton Stores, Inc. (NASDAQ:BONT).

The Bon-Ton Stores, Inc. (NASDAQ:BONT) is, like J.C. Penney Company, Inc. (NYSE:JCP), a mid-market department store retailer. It’s based in York, Pennsylvania. It has 272 stores operating under a variety of brands, including Parisian.

Like Sears and Penney’s, The Bon-Ton Stores, Inc. (NASDAQ:BONT) is losing money. Last year, it lost $21.5 million on sales of $2.97 billion. Despite the fact that many of its Midwest markets are on the comeback trail, its total market cap is just $303 million. That means stock buyers are paying just 10 cents for each $1 in Bon-Ton sales.

That’s the pit that J.C. Penney bears see yawning before the company. If Penney’s were selling like Bon-Ton, it might be worth just one-third what it is. Despite the fact that there are no indications Bon-Ton is about to go bankrupt – it’s actually paying a dividend – you can see this as a worst-case scenario for the stock. Money can still be extracted.

The future for J.C. Penney Company, Inc. (NYSE:JCP), based on its current stock price, probably lies between these two extremes.

The Foolish Bottom Line

There are many ways in which a large investor can get their money out, ways that may not be open to a small investor. Large investors can even take advantage of bankruptcy in ways that would bankrupt small ones.

But the fact is that is Ullman can just perform as well as he did before the Johnson debacle, the value of J.C. Penney Company, Inc. (NYSE:JCP) will go up. That, plus the low costs of borrowing, have given him that chance, and smart investors are loading up, not in expectation of a home run this time, but maybe a single, stolen base, and a ground ball with eyes.

They think the odds of that are fairly good. I do, too.

The article Why the Smart Money Believes in J.C. Penney originally appeared on Fool.com and is written by Dana Blankenhorn.

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