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Turnaround Stock Portfolio Week #2: Our Losers Are Winners! (So Far)

  +Follow October 4, 2013 9:00AM
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On Sept. 25 Equities began tracking ten stocks we dubbed “the Turnaround Stock Portfolio.” Unlike our other ongoing experiment the FUNY index, which is arbitrary and made up entirely of stocks with funny ticker symbols, the Turnaround Portfolio is based on quantified performance – poor performance, that is.

In 8 out of 10 cases, the stock had a negative return on the year. In the other two, the stock was either down over the last two years or was up marginally. And every stock in the portfolio was, at the start date, experiencing an ongoing crisis in leadership, worrying competition, or other major crisis.

But we didn’t pick stock destined for the toilet – in every case the stock had a potential to come back, and rebound from their past underperformance.

Component Spotlight

As we continue tracking the Turnaround Portfolio, we’ll be highlighting a few of its components and delve further into why we included this or that particular stock. This week, we’ll be looking at our Financial, Tech, and Consumer picks.  

Financial Sector Pick: Tower Group International Ltd. (TWGP)

Tower Group is a Bermuda-based property and casualty insurer who, at the time of the Turnaround Portfolio formation, was experiencing a fairly unusual crisis. Simply put, Tower Group was refusing to release their second quarter earnings report, having delayed it twice, which understandably spooked the heck out of investors. As a result, the stock lost over 60 percent of its value in six weeks.

Tower Group has only hinted that losses were far more numerous and severe than anticipated, and the company needed time to fully assess the extent of them. Estimates peg the unexpected losses at up to $110 million. Tower’s troubles date back to last summer, when the company was initially rocked by a rush of Hurricane Sandy claims.

Why We Picked Tower Group:

If an insurance company survives a natural disaster like Sandy, it can actually work out better for them in the long run, as it will cause future premiums for customers to rise. After all, the areas hit by Sandy have shown that they are in a hurricane prone-area.

That is, after all, a big “if,” and investors will know more when the company does finally release those second quarter earnings in “the week of October 7.”

Technology Sector Pick: Zynga Inc. (ZNGA)

Zynga was supposed to signal a new development in gaming. As Facebook Inc. (FB) built a social media empire Zynga was tight in the thick of it, making games exclusively for the burgeoning social media behemoth. The game Farmville, especially, was a robust hit for the company.

The company had their IPO on Dec. 2011 at $10 a share for a $7 billion evaluation. Things went downhill from there. Zynga was targeted for spamming Facebook user’s feeds with its game, and Facebook took action to scrub Zynga off their platform. The stock proceeded to tank, the company’s founder and CEO quit, and the company got surpassed by red-hot competitor King, who is about to have an IPO of their own. A last-ditch foray into gambling was recently officially shelved.

Why We Picked Zynga:

Zynga is an anomaly in the portfolio, as they are actually up substantially on the year. But they are still viewed overall as a disappointment, as they are down over 60 percent since IPO. Gaming stocks in general are doing well this year, and if Zynga can continue riding social gaming’s resurgence there’s still a chance they could get it together.

Consumer Sector Pick: JC Penney (JCP)

Where to start? The case of JC Penney is going to be taught in business schools for years to come in as a cautionary tale of what not to do to turn a company around.

The short version is, in a radical attempt to revamp the company, activist investor Bill Ackman installed Ron Johnson from Apple Inc. ($AAPL) as the new CEO, and the company engaged in a massive reform. The overhaul, which attempted to modernize the storied department chain, failed miserably, and customers fled in droves. Ackman ended up selling his stake with his tail between his legs, finally admitting the whole thing was a huge mistake.

The company still hasn’t recovered. Formerly the second-worst performing stock in the S&P 500 at just a tick better than Turnaround Portfolio stablemate Cliffs Natural Resources (CLF) , JC Penney is now far and away the index' worst returner, with a 57 percent loss in value this year.

Why We Picked JC Penney:

As is right now, it sits at its lowest price since the day after the October 1929 crash. If new CEO (actually, old CEO, re-installed) Myron Ullman can right the ship, JC Penney has the proven capability and resources to once again become profitable. The stock could see a nice upswing if they can win customers back that Ron Johnson lost.

Turnaround Portfolio Performance Check-In

Here’s how the Turnaround Portfolio looked after the bell on October 3:

Portfolio Return Since 9/25: 1.55 Percent

S&P Return Since 9/25: 0.06 Percent

So far, the Turnaround Portfolio is beating the S&P handily. Good work, us!* The excellent week of Quicksilver Resources Inc (KWK) and Atlantic Power Corp (AT) definitely carried it, while JC Penney continued getting rocked.

Check in with us next week as we continue profiling this group of losers that so far is beating the S&P.

*We make no assumptions about what may or may not happen to this portfolio going forward, nor do we advocate investing or not investing in these stocks. Investors are expected to do their own due diligence and consult professionals before sinking their money into anything.

Our interest is purely academic, and we made the Turnaround Portfoilo for our own amusement. We are easily amused.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for jcp
1MoreThing
20 Aug 14 10:35:54
:) 3 J's on my long candidate list. $JCP $JD $JKS
Chasing Stars
20 Aug 14 10:35:38
$TVIX Message Board Posts http://t.co/p5fxdh0pW0 Also See: $NFLX $CBAK $JCP $MTVX ~
Market News Desk
20 Aug 14 10:28:40
$JCP: [video] The Top Ten Stocks for Aug. 15 http://t.co/1pZrHQXfGd http://t.co/tjyUBR5vDx
charlie
20 Aug 14 10:17:15
Sold $JCP 10.45 +10.6% x2
MG
20 Aug 14 10:11:18
@thesandbum you mean for $JCP?
Alexander Morris
20 Aug 14 10:09:07
$JCP: At 6MoHIGH=10.44, hits:2, Rng:50%, ch:+1.9%, 0phNearHi:BrkPLo+PHi[+202.3%], tf:7f, HiPctSht[28%:1d], DyVol:18.95M:0.4x:0.3x
TV_Trading Ideas
20 Aug 14 09:56:52
30 min chart $JCP http://t.co/9tBzrqanvh
Tom Grimes
20 Aug 14 09:52:25
People continue to choose blind hope of a magic comeback, over reading Financial Statements when buying $JCP
Investors Hangout
20 Aug 14 09:49:51
leahanne: $JCP J.C. Penney Company Inc (JCP) 10.36 +0.11 http://t.co/tLWfb3N08c
Investors Hangout
20 Aug 14 09:49:51
leahanne: $JCP J.C. Penney Company Inc (JCP) 10.36 +0.11 http://t.co/gymLw1Y7Ci
Ani Anirudhan
20 Aug 14 09:44:13
blogging crap like this ain't gonna help you shorts no more. cover or die! $JCP http://t.co/0uLSs2OOrp
Calup Snider
20 Aug 14 09:39:42
out $JCP at 10.39 from average of 9.40. Position to small to warrant listing. Just a few hundred shares.
Thom Johnson
20 Aug 14 09:35:19
Sold all 70k $JCP at 10.38 from 9.79 - now out.Only position now is $NSPH which I'm down big bucks on, but have made it up on trades easily.
Clair Voight
20 Aug 14 09:31:39
$JCP JC Penney's Service Continues To Disappoint http://t.co/noZZYPjEgf
PolgarStocks
20 Aug 14 09:31:19
$SVFC Stock Message Board http://t.co/4sEXVVr6g7 Also See: $JD $USO $SLTD $JCP ~
Wall Street Monitor
20 Aug 14 09:28:29
$JCP: J C Penney Company Inc Heads In The Right Direction http://t.co/yc5XL2R0MJ http://t.co/Yh4cFVKbyQ
TV_Trading Ideas
20 Aug 14 09:28:25
My channel shows plenty of upside left $JCP http://t.co/4ChPaI8te8
TV_Trading Ideas
20 Aug 14 09:23:02
updated chart $JCP http://t.co/8zHCoMZmhH
leahanne
20 Aug 14 09:22:49
$JCP J.C. Penney Company Inc (JCP) 10.36 +0.11 (+1.07%) $PANW $VXX $ONVO http://t.co/1Pv4nq8CPB
TV_Trading Ideas
20 Aug 14 09:22:02
30 min intraday $JCP http://t.co/IPzFVaCtWd
Quantpost Service
20 Aug 14 09:10:56
$JCP News Alert: http://t.co/WMHrUBxkXG Updated options view: https://t.co/V2kuHwhMiR All options views: https://t.co/OJ9cC8zZqi
MarketCurrents
20 Aug 14 09:10:55
Back-to-school buying still a brick-and-mortar tradition http://t.co/mXpHH9BzeX $SHLD $JCP $SPLS $ODP
Mark S Boone
20 Aug 14 09:00:17
$JCP Noon time margin calls. Which way will they go? That 10.45 is a tough nut to crack, but it's going to happen. JMO. GLTA
Rosner Stocks
20 Aug 14 09:00:07
$SLW Tick http://t.co/MfbaNM7an1 Also See: $JCP $TVIX $GBGM $FFIV ~
Cutlass
20 Aug 14 09:00:01
RT @DGPSTweets: $JCP - Looking Good Keep on Making New High , Will PullBack Then Run Again IMO , This One is For LONGS !
Nate Quinn
20 Aug 14 09:00:00
$ZPIN the big boys just want your shares before upgrades hit. Same tactics used with $JCP after great earnings.
DGPSTweets
20 Aug 14 08:59:11
$JCP - Looking Good Keep on Making New High , Will PullBack Then Run Again IMO , This One is For LONGS !
Mark S Boone
20 Aug 14 08:54:36
$JCP I find it really interesting that nothing really news worthy has addressed this run up since Monday. How many short Whales were there?
Dathan Pyle
20 Aug 14 08:52:26
Back-to-school buying still a brick-and-mortar tradition http://t.co/CFLyWIhSo9 $SHLD, $JCP, $SPLS, $ODP, $WMT, $COST
Richard Cabrera
20 Aug 14 08:51:49
$jcp Shopped there maybe once this year.. but shares sure have soared since their earnings report #investing
Chasing Stars
20 Aug 14 08:41:58
$SSO Yield http://t.co/T2FlKxZH3g Also See: $UA $JCP $HGU.TO $SVXY ~
browns
20 Aug 14 08:39:12
$JCP run out of gas you ahole. :)
Langan Stocks
20 Aug 14 08:35:58
$SLTD % Change http://t.co/shBkERamem Also See: $JCP $JNK $TSL $PPH ~
Hawk_Eye
20 Aug 14 08:33:59
RT @EstmtdProphet: Adding to $JCP (aggressive) and $FNMA (accumulating) now. Both look good, sitting on the bid for $ALBKY (aggressive)
Thomas Moore
20 Aug 14 08:32:51
$jcp is breaking out of a strong base, could make a nice run in the next few weeks. imo
Estimated Prophet
20 Aug 14 08:30:28
Adding to $JCP (aggressive) and $FNMA (accumulating) now. Both look good, sitting on the bid for $ALBKY (aggressive)
El Matador Trader
20 Aug 14 08:28:32
$JCP breaking above $10.30. Let's see how it turns out this afternoon. With a strong close there is little resistance until $12
Thomas Moore
20 Aug 14 08:28:30
another good day, $utx $jcp $bbry $aro.
Business News
20 Aug 14 08:28:26
$JCP: [video] Consolidation shopping http://t.co/RX1jrf70ts http://t.co/LWrmj8IcqG
moderneconomist.com
20 Aug 14 08:26:40
RT @tymorapro: $JCP: At 1DyHIGH=10.44, hits:1, ch:+1.9%, 0phNearHi:BrkPLo[+202.3%], tf:7f, HiPctSht[28%:1d], DyVol:11.35M:0.2x:0.2x, DyRng:…
TraderJones2011
20 Aug 14 08:25:19
$JCP yesterday's high
Alexander Morris
20 Aug 14 08:24:41
$JCP: At 1DyHIGH=10.44, hits:1, ch:+1.9%, 0phNearHi:BrkPLo[+202.3%], tf:7f, HiPctSht[28%:1d], DyVol:11.35M:0.2x:0.2x, DyRng:2.4%:0.5x:0.5x
Mark S Boone
20 Aug 14 08:23:36
$JCP Watch out for those slow movers....that's consolidation going on...like a wind up toy...Boing. Just saying. GLTA
Brattle St. Capital
20 Aug 14 08:21:04
@NedKhouri @Hedge_FundGirl I don't get how $KSS hasn't sold off on $JCP mkt share gains. Or just because $KSS sucks in general.
Calup Snider
20 Aug 14 08:20:51
$JCP at HOD. Creeping towards yesterday's high.
BarracudaTrades
20 Aug 14 08:19:32
$JCP 5min watch for the B/O
EUGENIO SOCORRO
20 Aug 14 08:17:19
Watch List: $JCP
Trade Followers
20 Aug 14 08:16:08
Was surprised when $JCP didn't rally last Friday. It's playing catch up now. https://t.co/uB2fgzSZJi
nasdaqfan
20 Aug 14 08:12:32
$SIRI Ideas http://t.co/jPSGyxGXtA Also See: $SINA $JCP $FCX $XLV ~
androsForm
20 Aug 14 08:05:17
Most active calls by volume so far today... $MSFT $PBR $GD $JCP $AAPL $SE $END $GRA http://t.co/xWI1NkqnUz
				
				
  +Follow October 4, 2013 9:00AM
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