Don’t Bet On These Retailers

retail etfSteve Mauzy: I’m a contrarian value investor at heart.  My curiosity is more aroused by the stock that plunges 50% than the one that surges 50%.  I love trolling the bargain bins.


That said, I troll carefully. Some sectors tend to produce damaged goods that are even too dinged and dented for my liking.  Through experience, I’ve learned to avoid betting on a turnaround in an airline (most of the major airlines have been bankrupt at least once), a sit-down casual restaurant, a niche software developer. Once dinged and dented, no amount of putty and burnishing restores the luster.


I also generally avoid retail turnarounds. I’ve been asked a few times for my opinion on J.C. Penney Company, Inc. (NYSE:JCP) and Sears Holdings Corp (NASDAQ:SHLD).  I understand a contrarian’s interest. J.C. Penney’s share price is down 85% in the past two years; Sears’ share price is down 55%. Both are iconic retail names whose history can be measured in centuries.


Contrarian interest is further piqued because of celebrity-investor interest. George Soros owns a 6.6% stake in Penney. Sears is run by investor Edward Lampert, who owns 25 million shares, nearly 25% of the retailer’s outstanding shares.


I’m still not on board.  In 2007, Penney recorded $19.9 billion in revenue. That same year, Sears recorded $53 billion.  Over the trailing 12 months, Penney recorded $11.9 billion in revenue; Sears recorded $37.6 billion.  Each successive year brings in fewer dollars.


But what about the iconic names? Everyone is familiar with J.C. Penney and Sears.



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