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2 Stocks to Avoid on the Dead Cat Bounce

Stocks in this article: JCP RIMM

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). 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.

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