J. Crew vs. J.C. Penney: Which Retailer Has Got the Goods?

Includes: JCG, JCP
by: Echo To All

Echo To All submits: I have been weary on retail thanks to gas prices, but J.C. Penny’s (NYSE:JCP) report (and chart) made me jump on it about two weeks ago. JCP indicated to me that not all retailers are hurting, at least on the fundamental business level.

Fundamentally JCP has shown they are flexible enough, and are simply a good enough retailer, to withstand the hurt some others are experiencing. There is a strong demand for their stores yet they are opening those stores at the pace they are comfortable with. This impressed me. Management also knows how to perform at the operational level to contain costs.

I took notice of J. Crew (JCG) due to its impressive earnings report on Friday and, I must say, things are looking good for them. Yahoo Finance indicates an estimated 5 year growth rate of about 22%, but after looking into this story further I think they will be able to beat 22%. The company consistently beats its numbers quarter to quarter, and it does not hurt when the ‘Lone Wolf’ of Fast Money (who specializes in retail investing) calls their CEO a merchandising genius. (In other words management knows how to be great.)

Currently I am playing JCP for the trade to 84, but I find it to be a viable long-term hold. (And I will keep trading it for the long-term.) With a PE of 15-16, and the bullish sentiment within the retail index, JCP should be a good bet.

Index chart:


Some of this bullishness is coming from financial engineering from the big boys like Wal-Mart (NYSE:WMT), but a lot is coming from good quarterly reports from heavy hitters in the space that beat analyst estimates.

J.Crew should benefit from the wind on its back, thanks to the index, as well. But, JCG is not cheap. It appears fully valued here considering the macro economic conditions (i.e gas prices), and the chart is looking overbought.



I think the long-term fundamental story of JCG is looking very good, but the chart has a history (albeit a brief history) of consolidating after a big move upward before continuing the move. I will enter upon this consolidation.

So, JCP vs JCG: between the two names I would go with… both (anticlimactic, I know, but then again I’m not that exciting of a guy.)

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