Tag Archives: J.C. Penney

is it time to stock up on struggling retailers?

[Note: this post originally appeared on the CFA Institute’s Enterprising Investor blog.]

Many retailers enjoyed a cheerful holiday season. November sales figures handily beat analysts’ expectations, rising nearly 5% year-over-year (YOY), and lower gas prices and an improving economy drove strong results in December as well. Investors looking to capitalize on these glad tidings might be tempted to consider some of the bargain stocks in the sector, especially those that have faltered in recent years, such as JC Penney (JCP) and Sears (SHLD), or even deeply troubled firms, such as RadioShack (RSH) and Wet Seal (WTSL).

Not to play the Grinch, but history suggests this would be a terrible idea.

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penney’s (not) from heaven

First, some welcome good news during what has been a gloomy start to autumn: Publishers Weekly gave my forthcoming book Dead Companies Walking its first review–and it was very positive. Here’s an excerpt:

Hedge fund manager Fearon shares his take on why companies fail in this surprisingly entertaining mix of business guide and memoir. Fearon … isn’t shy about revealing some of his financial missteps … But, as he insists, his mistakes—and his observation of others’—have helped him recognize key warning signs of a company about to tank … The final takeaway of this spirited book is that “learning to love failure all over again” can help America recover the adventurous spirit that Fearon believes our economy needs.

The book’s two main messages are that failure is far more common in business and investing than most people want to admit and that even very smart people sometimes make very dumb decisions. As I readily and repeatedly admit in the book, I’m no exception. I’ve made plenty of boneheaded mistakes as an investor and a businessperson. And, apparently, I’m not done making them. This week I goofed big time.

Last Wednesday, I published an article on Seeking Alpha praising the retailer J.C. Penney (ticker: JCP) and discussing why I covered my previous short position and bought a six figure position in the company. Today, at the company’s analyst day, management lowered guidance for same store sales growth for the upcoming 3rd quarter. Its stock promptly cratered. By day’s end, it was down just under 11 percent. Oof. That’s embarrassing–and expensive. Making matters worse, as I wrote last week, another stock in my fund–Trinity Industries–fell sharply after Jim Cramer predicted doom for the company. Add it up and I’m ready for October to be over already.

Bad runs are inevitable in investing. I’ve been through them before. The important thing is how you react to them. So, what am I going to do now? First, I’m going to stop crying. Then I’m going to do some serious thinking, and self-examination.

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