Retail Stocks: The Bad, The Ugly, and the Worst – J.C. Penney Company, Inc. (JCP), Macy’s, Inc. (M)

Page 1 of 2

Online shopping has grown increasingly competitive over the years.  Many retailers have started to follow the trend to capitalize on the online marketplace, but they still have much higher expenses than businesses that operate purely online. Investors, then, have very good reason to question which retailers are likely to last another ten years in the business. You probably remember visiting a Circuit City at some point in the distant past, but who would have ever thought they would go out of business?

In this article we will check out some popularly traded retailers and see what’s been going on with share prices, hedge fund holdings, and fundamentals in the recent past.  With this information, hopefully we can make a reasonable assessment as to which stocks are more deserving of your portfolio’s risk.

Up first, J.C. Penney (NYSE: JCP):

J C Penney Company Inc (JCP)With annual revenue decline at a compounded rate of -3.5% and EBITDA erosion of almost -19% from 2008-2012, this would seem to be a questionable investment at first glance.  J.C. Penney’s stock used to trade over $85 per share in 2007 before dropping below $50 in 2008.  They currently trade around $21, or roughly 40% below 2008 highs, so it’s clear shareholders are concerned.  But for those of you who follow J.C. Penney in the news, you may know that Bill Ackman’s hedge fund, Pershing Square, keeps over 10.5% of its portfolio in J.C. Penney’s stock.  As of 3Q 2012, it was a top 5 holding for the fund.

Read our November, 2012 article: J.C. Penney: Bill Ackman Touts Support to learn why he is such a big fan of the company.  Ackman’s reasons for staying bullish on J.C. Penney are well founded, and with his near billion-dollar bet, this stock might be worth looking into further.  Here at Insider Monkey we’re fans of following in the hedgies’ footsteps (click here to check out our strategy).

Next, Sears (NASDAQ: SHLD):

Like J.C. Penney, Sears has experienced revenue decline over the same period.  Their revenue is shrinking at a rate of -4.8%, slightly higher, while EBITDA is declining at a compounded rate of nearly 48% per year.  That data might explain the roughly 55% decline in Sears’ stock price since 2008.  Their stock price was actually under $30 at the beginning of 2012, which is around 72% below 2008 highs.  For fiscal year 2012, Sears reported a net loss.  Though about half of this was from deferred taxes, the amount that isn’t from deferred taxes still overshadows all net income from 2008-2011.  Although I personally still have faith in Sears in the long run, I think there may be another opportunity to buy this stock under $30.

Hedge fund ESL Investments, managed by Edward Lampert (see Lampert’s favorite stock picks), was holding over 42% of his fund’s $5.5 billion dollars in Sears—a lofty bet from the new CEO.  Robert Jaffe’s hedge fund, Force Capital, is also a major Sears’s shareholder, keeping over 15% of his 13F portfolio in the stock, placing it as his No. 2 holding. With two enormous bets from two big players, Sears should not be overlooked as a potential value play.

Who’s left?

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!