Friday February 03, 2012
by Mike Cintolo, editor Cabot Top Ten Trader
For our latest Editor’s Choice, we’re selecting a stock that just broke out of an eight-month base on humongous volume.
JC Penney (JCP) is far from being a growth stock, but the market seems convinced that it’s on the cusp of a powerful turnaround.
Indeed, the company is just embarking on an aggressive turnaround plan—actually, it’s more of a total transformation, and the stock is strong today because investors like what they’re hearing.
It all started with new CEO Ron Johnson, who ofﬁcially took over in November; he was the former head of retail operations for Apple and was the pioneer behind the hugely successful Apple retail locations.
Johnson recently announced a host of changes that will be implemented in the months and years ahead—a new everyday low-price strategy, with the price of many items cut 40% or more to better compete with the likes of Target and Wal-Mart.
More than that, though, the company will be cutting back on myriad (and often confusing) promotions, and also reorganizing the stores into collection- and brand-speciﬁc layouts.
Johnson will be investing $800 million this year to ﬁnance the transition, but on the other side of the coin, he believes the company can cut costs by $900 million during the next two years.
All in all, the top brass thinks earnings this year could leap above $2.10 per share, miles above estimates of $1.65 or so.
Of course, there’s no proof that this turnaround will work, but the market is putting its faith in Mr. Johnson and the path he laid out last week. It’s an intriguing situation.
JCP has been anything but a growth stock for years, though it has had some big multi-year moves—it’s gone from 79 in 1998 to 9 in 2000, back up to 87 in 2007, before crashing to 14 in 2009.
Since that most recent low, not much had been happening ... which was why new management was brought in.
But that’s changing; JCP built a beautiful eight-month cup-with-handle base, including a nice, tight four-week zone in the mid 30s. Then, last week, the stock exploded to new highs on volume that was nearly 10-times average!
It’s not going to double overnight, but after a long period of nothing, JCP should move higher from here.
Learn more about this financial newsletter at Mike Cintolo's Cabot Top Ten Trader.