Herb Greenberg
Couldn't help but wonder what Bob Olstein of the Olstein Financial Alert Fund is thinking these days about J.C. Penney (JCP Quote - Cramer on JCP - Stock Picks). A month ago he had mentioned it as a stock he really likes in a column I wrote in Fortune, citing his warnings for when a stock might be good. (Yep, it's the new me, looking on the bright side of things! Don't believe it for a second!)
Since then, the company has issued two (not one, but two) earnings warnings. To which Olstein, who bases his investments on a thorough review of the financial statements, says: "I bought more stock." So much, in fact, that he now owns more than 1 million shares that have an average price of $17. It is now his largest position, comprising 2.5% of his portfolio. If all goes well, he says of the stock, which closed Thursday at $10.06, "We'll make 100% on our money. We think they're off on the right track. Here's a company with $33 billion in sales. Its debt has moved from $10 billion to $5 billion and soon will be $3 billion. They've got outstanding management in there. But Wall Street yuppies don't like J.C. Penney because they don't shop there. But Middle America does shop there." Within three years, he believes the company can earn $1.50 per share by "doing almost nothing." That compares with $1.12 per share last year and the 1 cent, in total, that it has earned over the past 12 months. "You can list almost every negative you want," Olstein says, "but this stock is down from 70 to 10. You buy in the eye of the hurricane because if you're wrong you can't get hurt as badly." What if he's wrong? "There's no room for ego in this business," he says. In other words, he'd sell it. But he won't know until spring, by which time, "If they don't start turning their stores and showing positive margin increases, then I'm in doubt that they can ever turn it." Speaking of retail: What about Gap (GPS Quote - Cramer on GPS - Stock Picks)? Olstein says he wouldn't buy it yet because he doesn't believe the company has fixed its stores yet. Interestingly (as readers of the RealMoney.com Columnist Conversation know from Thursday), that's what several former Gap short-sellers told me. While they're no longer short the stock, they don't yet believe the company is fixed. Also from the CC (as we call it): Rick Sherlund of Goldman Sachs was out with an analysis of Microsoft's (MSFT Quote - Cramer on MSFT - Stock Picks) 10-K. The kind of nuggets that jump out to money managers who track the company include the disclosure that the company has 157 million put warrants, with an average exercise price of $74 per share, that stretch out over the next 30 months. That means, with the stock now at about $55, that Microsoft "now has 157 million shares that it may need to repurchase over the next 30 months at a price of $11 billion." That obviously wasn't the bet Microsoft made when it sold the puts. The company has $24 billion in cash, so this clearly won't break the bank. And over the next 30 months it will certainly generate more cash. Still ... that's not chump change! And turning to the world of semiconductors (again, previously on the CC): This from Fechtor Detwiler (guys who do great channel checks): "The Semiconductor Equipment purchasing cycle looks and feels different this time from past occurrences. ... We are seeing a clear decline in the rate of order growth for new process tools." The most vulnerable companies, it says, are those companies whose biz mostly goes straight to the major equipment makers. Names include Nanometrics (NANO Quote - Cramer on NANO - Stock Picks), CoorsTek (CRTK Quote - Cramer on CRTK - Stock Picks), Brooks Automation (BRKS Quote - Cramer on BRKS - Stock Picks) and MKS Instruments (MKSI Quote - Cramer on MKSI - Stock Picks). Doesn't speak well for the state of the PC industry, which in theory should be keeping the channel hopping this time of year with pre-Christmas biz. But wait, there's more: An item in my column Wednesday questioned whether trouble at Masco (MAS Quote - Cramer on MAS - Stock Picks) could spell trouble for Home Depot (HD Quote - Cramer on HD - Stock Picks), which represents 24% of its sales. One supplier to HD suggested that maybe Masco just ran out of the "wiggle room" required to give HD cheap prices. "We are all squeezed and forced to fire longtime colleagues just to be viable," he says. "They are tough to deal with and getting tougher." But what happens after you've squeezed everybody as much as you can squeeze them? (Somebody new comes along to take your place, that's what!) ... Finally, remember our old pal Stewart Enterprises (STEI Quote - Cramer on STEI - Stock Picks), which operates funeral homes and cemeteries? Sounding an awful lot like it's doing everything to avoid landing on the embalming table itself (not to mention avoid being in violation of loan covenants), the company has suspended payments on its quarterly dividend.
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