This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

2 Stocks to Avoid on the Dead Cat Bounce

NEW YORK ( TheStreet) -- Investors often take a low P/E ratio, coupled with billions of dollars in revenue, to mean value play. While this is sometimes the case, the opposite frequently holds true. Don't let hollow upside, aka a dead cat bounce, make you take a long-term leap in these two dying stocks floated by dying companies with dying brands.

J. C. Penney (JCP - Get Report). If you day trade stocks or make other types of short-term trades, there's no better move than getting long a stock like JCP after it gets clobbered.

After falling off of a cliff at the open last Wednesday, JCP found a bottom Friday and ended up more than 1% on an otherwise down day for the market. This pop erased very little of 20%-plus decline JCP experienced on an abysmal earnings report. While there might be more upside in store, it's upside I would only be willing to trade. A dead cat bounce does not equal long-term opportunity.

Newser, via the TheStreet summarized one of the reasons why Ron Johnson's plan to turn J. C. Penney around simply will not work:

J. C. Penney's new plan -- stop offering huge markdowns on inflated, "fake prices" in order to offer "fair and square" pricing -- sounds good in theory. Prices start at least 40% lower than they had been, with no need for customers to take advantage of sales or coupons to get the lowest price ...

"The consensus ... seems to be that the J. C. Penney makeover is shaping up as a major flop," writes Brad Tuttle in Time.

Why? Shoppers like coupons and sales. JCP CEO Ron Johnson thinks this problem can be solved by "educating" shoppers about the new, fairer pricing strategy, but they don't want to be educated, Tuttle writes: They want "that 'Wow! What a deal!' high" that only markdowns bring, and that high can usually be found at an establishment right next door to your local J. C. Penney.

Well-stated. But, there's more.

Pardon my American slang, but there's really not a nicer way to say it -- JCP's product blows. And what's worse is you can get practically everything the department store sells at another equally soulless department store, loads of chain stores and many other types of outlets ranging from local brick-and-mortar establishments to e-commerce shops. And what's even more dreadful for JCP is the fact that these other outlets properly play to the consumers' desire to score a big sale.

Ron Johnson is no longer at Apple (AAPL). He does not enjoy the luxury of riding shotgun with Steve Jobs any longer. The idea of not having sales and advertised discounts is a great one when you have the types of premium products Apple does. You have no choice but to feign bargain, no matter how much you think this common strategy insults your customers' collective intelligence, when you're selling junk that's a dime a dozen.

If Johnson is smart, he'll swallow his pride, scale back the bravado and convene the heads of Sears (SHLD) and Macy's (M) to talk M&A or, at the very least, aggressive partnership. The only way the department store can possibly survive, outside of world cities such as Manhattan, is by sporting a unified front.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
JCP $8.41 7.40%
AAPL $124.49 -1.50%
FB $82.16 -1.20%
GOOG $548.46 -0.65%
TSLA $188.77 -0.94%

Markets

DOW 17,776.12 -200.19 -1.11%
S&P 500 2,067.89 -18.35 -0.88%
NASDAQ 4,900.8850 -46.5560 -0.94%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs