A Surprising Retailer in Comeback Mode

02/14/2012 7:15 am EST


Timothy Lutts

Publisher, Cabot Heritage Corporation

Retails have seen some tough slogging through this economic muck for quite a while, but this one seems to have made the changes necessary to pull it back from the edge of the abyss and transition into a real value opportunity, writes Timothy Lutts of Cabot Wealth Advisory.

The stock I recommend today is a bit unusual. In fact, to a small extent, I’m surprising myself! But its selection comes from following a methodology that’s worked before, and will absolutely work again, more often than not.

The company is JCPenney (JCP), long dismissed as just another mid-level retailer. And it couldn’t be more mature. The company was founded by James Cash Penney 110 years ago, and now has stores in 49 states. So where’s the opportunity?

Succinctly, in new management. Specifically, in Ron Johnson.

He spent 16 years at Target (TGT), where he became Senior Merchandising Executive.

He moved to Apple (AAPL) in 2000, where he pioneered the concept of Apple retail stores, as well as the Genius Bar concept. Those, as you know, have worked out extremely well.

And in June of last year he joined JCPenney, where he’s been making changes fast. One change is the new logo, clearly designed to tap into American spirit.

JC Penny Logo

Other changes include a new pricing strategy, promotions built on a monthly calendar, changing merchandise layouts from endless racks to a series of 80 to 100 brand shops, the evolution of the monthly "look book," and the return of Ellen DeGeneres as a "brand partner."

It’s almost certain the changes will help.

And if they help even a little bit, the stock should do well, because the stock has been dormant for a long time…and it’s cheap, selling for roughly half of one year’s sales.

And if the changes help a lot, for example by boosting profit margins from the 1.9% of the past twelve months to perhaps double that, or goosing revenue growth rates from the 1% in 2011 to something substantially higher (double-digits would be awesome), the stock could soar.

As to the stock’s technical action, JCP roared to life after management’s investor presentation on January 26, spiking from $34 to $41, and it’s been trading roughly between $40 and $42 since.

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