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I was listening to another reporter discuss the JC Penney (NYSE:JCP) situation yesterday.

It's pretty much as bad as I said it could be last month. Ron Johnson has finally gone. Mike Ullman has returned, on an interim basis, like one of those loyal coaches brought in to finish the year with a losing team after their manager gets shown the door.

But the reporter said the most amazing thing. Asked at the end whether JCP was now a buy or a sell, he called it a buy. He seemed as shocked to be saying it as I was shocked to be hearing it.

Could that possibly be?

At its present price the company has a market cap of $3 billion. But even under Johnson's mismanagement it achieved sales of nearly $13 billion last year. That means you're paying less than 25 cents for each dollar of sales.

As of February 2 the company still had $930 million in cash. The debt to assets ratio is up to about 30%, but there are still $10 billion in assets on the books, most of it in real estate, equipment, and other hard assets that may be difficult to move. But even in a fire sale, those assets should be worth $7 billion. That is a lot less than $3 billion.

Ullman can do a few things to turn things around in the near term. He can go back to having sales. He can bring in more mid-market merchandise. He can apologize to his old customers, beg them to come back, promise them some bargains. Back when he was running the company, it wasn't doing great but it was making money.

And in the meantime the board can look for a buyer. You may not believe it, but there are some potential buyers out there. Kohl's (NYSE:KSS) has the wherewithal to buy it - they're worth about $10.5 billion. Macy's (NYSE:M) could buy it. Sears Holdings (NASDAQ:SHLD) could buy it easily. Even if it closed stores and sold assets, it could probably pull most of that $7 billion out.

When a company is selling for less than its break-up value, there's value in it. Even Bill Ackman of Pershing Square, whose bad bet on Johnson started this mess, might want to organize a swoop to recoup some of those losses. He reportedly had 16.5% of the common at one time, bought at around $20/share, and is down $200 million.

So as strange as it is to say, there is a buy case to be made for JCP at these prices. Even junk can be a good investment. Want some?

Source: Is J.C. Penney Now A Buy?