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JCPenney Stock Is Still Not Cheap Enough

Nicolas Chahine

Fundamental traders are always looking for bargain stocks. The idea is to look for beaten down companies to buy them low and sell them high. But sometimes it’s best to just pass on the investment and let some opportunities go. J C Penney (NYSE:JCP) and JCP stock is one of these situations.

On its way down, when was JCP stock cheap enough? In hindsight, the answer is never. Those who tried to catch it lost money. Clearly, not every low-priced stock is cheap. Consider this case where the stock is is now down 50% just this year. It is down 85% in five years.

I am certain that all the way down there were hopeful investors who got hurt trying to catch the falling knife. Unfortunately, some are meant to hit the floor.

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Fundamentally, JCPenney stock had major hurdles that turned out to be insurmountable. The digitization of shopping led by Amazon (NASDAQ:AMZN) was a tsunami that destroyed the brick-and-mortar JCP business as the company failed to adapt.

It was not alone, for example Macy’s (NYSE:M) is down 27% in five years. But that’s not an excuse, as there are still winners like Target (NYSE:TGT), which is up 34% for the same period. Even the SPDR S&P Retail ETF (XRT) is up 10%.

On the other extreme is Kohl’s (NYSE:KSS), which is up almost 100% just this year and up 50% in five. Management there has been active and even working with AMZN to make sure they stay relevant.

Perhaps JCP clientele demographics wasn’t yet ready to make the switch to online. Management didn’t sit still, they simply failed at it even if not for the lack of efforts. There were several high-profile attempts to retrain their shoppers, but they were more like experiments than strategies.

The end result is that JCP now is but a sliver of what it once was and in danger of extinction. Today’s write up its not to nitpick management and offer a bunch of shoulda-coulda-woulda. This is to show the importance of identifying the opportunity for what it is.


Bottom Line on JCP Stock

JCPenney stock’s failure doesn’t mean that it is not tradeable. It had several rallies this year and some over 20%. But they were all opportunities to sell, so these are tactical trading opportunities but without the hope of a full recovery.

With a market cap of $400 million, those trading it should cover up the ticker symbol so not to be tempted to remember its prior glory days and turn a trade into an investment. Proper timing is imperative so one needs to study the charts for for breakout or breakdown levels to find clear entry and exit points.

The point today is that investors should avoid getting stuck searching for bottoms where ones don’t exist. Instead of buying failing stocks just because of past history, first make sure they are not likely to become failing businesses. Otherwise, trade the JCP stock price action, not its value proposition.

Even Wall Street pros are confused. They have kept a hold rating on JCPenney stock as it trades below their average price target. Some even still have it as a strong buy. So clearly, and with all due respect, I don’t take cues from them.

This is a pure chart-based trading opportunity at best.

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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.

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