J.C. Penney Is No Bargain as Volume Soars and Shares Plunge

NEW YORK ( TheStreet) -- We're getting close to a good, old-fashioned 10% stock market correction. When a company like J.C. Penney ( JCP) is the most actively traded stock on the New York Stock Exchange, you have to wonder if things will get worse before they get better.

Although I'm not a pessimist, the current state of most of the large global stock markets is looking partly cloudy with a 50% chance of correcting further. It's getting so bleak that Jim Cramer wrote an article titled The Uncertainty That Ails This Market.

He mentions, in part, retail sales, asking, "Who can trust these numbers? Who went out in this weather? At the same time, though, how do we know that people aren't permanently changing their habits right now in response to better ways to shop?"

Now let's turn things upside down for a moment. J.C. Penney is one of the oldest but most "broken" retailers in America today. Perhaps only Sears (SHLD) can be compared to this genre of Nearly Dead Ancient Retailers, the old-school, bricks-and-mortar retailers that may have already become obsolete.

Perhaps that is why we are experiencing on this third day of February a stock like Penney collapse down to a new 52-week low of $4.90 -- only to see the Associated Press come out with a story titled Sales Pick Up at J.C. Penney in Key Holiday Period. Talk about experiencing investor whiplash!

According to AP, the good news is Penney had its first quarterly increase in comparable-store sales in something like two years. The bad news is investors used the good news as an excuse to dump the stock.

When you think back to to the past year when Penney had quarters where same-store sales were down a gut-wrenching 32% from the comparable year-ago quarter, it's beginning to look more like the possible end of an iconic American business.

As the AP reminds us, "Same-store sales are considered a key measure of a retailer's heath because the metric strips away the volatility associated with stores that have recently opened or closed."

J.C. Penney will report earnings on Feb. 26 after the close. With the stock struggling to stay above the all-important psychological $5-a-share level, this earnings report may be the "make it or break it" announcement. As you can see from the long-term chart below, shares haven't been this low for a long, long time. My research confirms that you have to go back to the early 1980s to find a time that Penney was so low that it's almost ready to be called a "penny stock."

JCP Chart
data by YCharts

That orange line representing the trailing 12-month income from continuing operations helps us to see one of the main reasons Penney is currently in the throes of extinction. If you're a shareholder or a bottom fisher, you might want to carefully study the consensus of the analysts estimates for what the company will be reporting.

The bad news is the average estimate for its EPS for the last quarter is a loss of 76 cents. The good news is that's much better than the year-ago quarter when Penney reported an EPS loss of $1.95. Analysts are expecting the company to report sales growth of 1.4% on revenue of $3.94 billion. Can you imagine what might happen if the company disappoints on EPS, revenue or guidance for 2014?

Perhaps J.C. Penney will get lucky and Ed Lampert, the CEO of Sears Holdings, will figure out a way to merge or take over the ailing anachronism. Sears did that when it swallowed up K-mart. With Sears stock also down to a 52-week low, the timing would be just right.

If you think that's true I have a bridge I'd like to sell you with a low down payment and easy terms.

At the time of publication the author had no positions in any of the companies mentioned in the article.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial writer and editor, he specializes in unique investment strategies, growth with income stocks, overlooked investment themes, tax-advantaged themes, risk management, technologies to capture gains and reduce losses, real estate related opportunities,effective wealth preservation techniques, and the use of ETFs for diversification and asset allocation. He also follows and frequently writes about technology, health sciences, energy and resource companies. Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.