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JCPenney Is Toast: Wal-Mart Wins Among Retailers
Posted by: Charles Sizemore (IP Logged)
Date: November 9, 2012 11:25PM

Here is a headline that should come as no surprise to anyone: “JCPenney (JCP) Turnaround in Doubt as Sales Plummet,” CNBC, Nov. 9, 2012.

Big shock. J.C. Penney has been a company struggling to find direction for the past 20 years. The company is a “tweener” that had a hard enough time competing with the likes of Wal-Mart (WMT) and Target (TGT) on the low end and with Dillard’s (DDS) and Macy’s (M) at the mid-range price point before the Internet revolution. But now that the company has to compete with established Internet retailers like Amazon.com (AMZN) and every up-and-coming online retailer as well.

To put it bluntly, J.C. Penny is toast. For a long-term play almost guaranteed to make money, you could consider shorting it and waiting for it to eventually go belly up. But that’s not what I want to discuss today. Instead, I want to recommend that readers pick up shares of Wal-Mart.

Consumer sentiment is improving—Reuters reports that it just hit a five-year high — yet with the dreaded fiscal cliff looming in the wake of the presidential election, I expect consumers to be looking for bargains in their Christmas shopping this year.

This is bullish for low-cost Internet retailers, of course. Yet with Amazon.com and other major online players now forced to levy sales taxes, the cost differential with “bricks and mortar” retailers isn’t as wide as it used to be.

And this brings me back to Wal-Mart. In addition to running the largest chain of retail stores in the world by sales, Wal-Mart is aggressively jumping into Amazon’s territory with an expanded online presence. It may be years before Wal-Mart is able to effectively compete with Amazon in the online sphere, but Wal-Mart’s massive physical presence does give it one unique advantage over Amazon that I expect to be significant over time: the avoidance of shipping costs. As an example, I recently dropped several hundred dollars buying my son a tree house. Wal-Mart’s price was roughly equal to Amazon’s, yet I was able to save nearly $300 in shipping costs due to my option of picking up the boxes at my local store (alas, it has been two weeks and I am still trying to assemble the @#$& thing, but that is another story for another article).

Wal-Mart trades for 13 times next year’s expected earnings and yields a reasonable 2.2% in dividends. I consider this a stock that you can buy and hold for at least the next one to five years.

Disclosures: Sizemore Capital is long WMT.


Stocks Discussed: JCP, WMT, TGT, AMZN, M,
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Rating: 2.0/5 (27 votes)



Re JCPenney is Toast Wal-Mart Wins Among Retailers
Posted by: The Science of Hitting (IP Logged)
Date: November 9, 2012 03:49PM

"To put it bluntly, JCPenny is toast. For a long-term play almost guaranteed to make money, you could consider shorting it and waiting for it to eventually go belly up."

What do you think about the value of the real estate? Would you mind explaining why this is "almost guaranteed" to go belly up? I'm willing to bet that you know little to nothing about the situation (particularly the balance sheet)...

Also, are you short JCP? How long have you been short if you are? Thanks


Stocks Discussed: JCP, WMT, TGT, AMZN, M,
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Rating: 5.0/5 (1 vote)



Re JCPenney is Toast Wal-Mart Wins Among Retailers
Posted by: valueinvestor (IP Logged)
Date: November 9, 2012 03:57PM


I'd have to disagree with this article. While I think Wal-Mart will do well, rising consumer sentiment generally bodes well for retail that is up market of Wal-Mart. At today's valuation I would say WMT is a hold/reduce on valuation and JCP is a buy. Also bankruptcy is not a strong possibility at JCP in my opinion. At these prices the downside is somewhat limited on JCP and the upside could be quite attractive. Just my opinion. FYI I own both.


Stocks Discussed: JCP, WMT, TGT, AMZN, M,
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Rating: 5.0/5 (1 vote)



Re JCPenney is Toast Wal-Mart Wins Among Retailers
Posted by: random_walker (IP Logged)
Date: November 9, 2012 04:27PM

One of the worst articles I've read. Gurufocus, you are lowering your standard by publishing things like this.


Stocks Discussed: JCP, WMT, TGT, AMZN, M,
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Rating: 0.0/5 (0 votes)



Re JCPenney Is Toast Wal-Mart Wins Among Retailers
Posted by: cdubey (IP Logged)
Date: November 11, 2012 03:35AM

The headline from CNBC is not surprising.

I am quite surprised by the way you used it in the article though. You would be well advised to switch off CNBC and do your own research.

I just removed you from my RSS feed. I can get better advice by tossing a coin.


Stocks Discussed: JCP, WMT, TGT, AMZN, M,
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Rating: 5.0/5 (1 vote)



Re JCPenney Is Toast Wal-Mart Wins Among Retailers
Posted by: w1omega (IP Logged)
Date: November 11, 2012 10:07AM

If I were a shareholder of JCP, I would rather compete against Dillard's and Macy's than Target, Walmart or Costco. Ackman's thesis makes sense on paper, perhaps especially for LT. But who really knows if short term pain will be just that - short term?


Stocks Discussed: JCP, WMT, TGT, AMZN, M,
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Rating: 1.0/5 (1 vote)





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