J.C. Penney Company, Inc. (JCP) is a familiar anchor tenant in many malls. Its status as a household name makes it one of the most researched stocks. Should investors restrict their research to stocks like JCP because they are well-known?
No, web-enabled stock research should not restrict itself to popular companies or to stores which can be seen from the food court. On the contrary, investment returns are ultimately dictated by financial performance, not by popularity. Independent research allows investors to go beyond the most visible stocks to shop lesser-known alternatives. As simple as it sounds, you are better off shopping around than using your perceptions as a retail shopper to filter for familiar products or popular stocks.
Regardless of JCP's popularity, its earnings and future cash flows will determine its value. The future financial potential of a stock can be gauged by using financial metrics to determine how cheaply a stock is priced, its ability to weather hardship, and its growth potential.
As alternatives to JCP, consider the following stocks with solid credit scores:
Ticker | Company | Industry | Altman Z-score |
Aceto Corp. | Chemicals - Major Diversified | 3.5 | |
Amtech Systems Inc. | Semiconductor Equipment & Materials | 3.3 | |
CMRG | Casual Male Retail Group | Apparel Stores | 3.1 |
Delta Apparel Inc. | Textile - Apparel Clothing | 3.3 | |
Dover Saddlery, Inc. | Sporting Goods Stores | 3.5 | |
G-III Apparel Group, Ltd. | Textile - Apparel Clothing | 3.4 | |
Group 1 Automotive Inc. | Auto Dealerships | 3.9 | |
Synalloy Corp. | Steel & Iron | 5.0 | |
UTi Worldwide Inc. | Air Delivery & Freight Services | 3.5 | |
JCP | J. C. Penney Company | Department Stores | 2.5 |
Like JCP, these alternative stocks are all categorized as "safe" according to the Altman Z-score,* indicating that they are not considered bankruptcy risks.
What's more, these stocks are cheaper, and have better growth prospects than JCP:
Ticker | P/E | P/S | P/B | EPS growth past 5 years | EPS growth next 5 years |
ACET | 22.62 | 0.48 | 1.27 | -1.8% | 22.0% |
ASYS | 4.91 | 0.44 | 0.93 | 45.9% | 35.0% |
CMRG | 11.13 | 0.41 | 1.32 | 1.5% | 17.0% |
DLA | 33.41 | 0.27 | 0.99 | 3.0% | 25.0% |
DOVR | 11.41 | 0.29 | 1.78 | 16.0% | 23.0% |
GIII | 8.52 | 0.39 | 1.34 | 37.8% | 17.5% |
GPI | 17.44 | 0.21 | 1.58 | -5.7% | 19.3% |
SYNL | 11.17 | 0.41 | 1 | -5.3% | 19.4% |
UTIW | 21.07 | 0.32 | 1.67 | 4.5% | 18.3% |
JCP | 54.03 | 0.5 | 1.93 | -16.2% | 16.3% |
Based on lower price multiples, these stocks are cheaper than JCP at current market prices. Better yet, they have higher growth prospects according to analyst projections. Thus JCP's price would have to drop significantly to become competitive with these stocks because at current valuations they are simply better deals. Essentially, screening for better stocks is a lot like rummaging through the clearance rack for good buys.
Rather than restrict yourself to concentrated investments in a familiar stock, consider a diversified mix of these nine securities as a more attractive alternative. This portfolio is cheaper, is more likely to see higher earnings, and is diversified across industries.
*Please read the article disclaimer for this article and Altman z-score calculations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
