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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
Stockaholics
25 Oct 14 02:51:41
Our Penny Stock Alerts Gained 371% In 2 weeks! Sign Up For Free Text Alerts For Our New Pick: http://t.co/Wsu24zYrur $JCP $AQUM $WSGI
Stockaholics
25 Oct 14 00:00:34
Our Penny Stock Alerts Gained 371% In 2 weeks! Sign Up For Free Text Alerts For Our New Pick: http://t.co/Wsu24zYrur $JCP $AQUM $WSGI
Elvin Cruz
24 Oct 14 22:11:26
RT @AtlBizChron: .@HomeDepot veteran jumps ship for @jcpenney http://t.co/nYlBPUXYbj $HD $JCP #leadership http://t.co/YewY69eJK3
Rudy Alvarez
24 Oct 14 20:38:48
“@daily_finance: Can a former Home Depot exec renovate J.C. Penney? http://t.co/NpB03cYemN $JCP $HD” interesting read
DailyFinance
24 Oct 14 20:30:15
Can a former Home Depot exec renovate J.C. Penney? http://t.co/wp0lW1seZw $JCP $HD
Eyang Sukur
24 Oct 14 16:18:08
RT Chayton Falke ChaytonFalke : Top Twenty Recent Exits #6: Covered $JCP short for a 19.03% gain in 12 days! #trading #JCP #forex #stocks
Chayton Falke
24 Oct 14 16:15:06
Top Twenty Recent Exits #6: Covered $JCP short for a 19.03% gain in 12 days! #trading #JCP #forex #stocks
Variety Financial
24 Oct 14 15:51:37
RT @daily_finance: Can a former Home Depot exec renovate J.C. Penney? http://t.co/4LSTFlK2N3 $JCP $HD
Stock Signaling
24 Oct 14 15:31:25
Upgraded Stocks Active After Hours: $BWLD $GIMO $INFN $YELP $TSCO $NLNK $YHOO $ETFC $ILMN $HAL $WERN $KEY $HST $JCP $CLMT #finance #nyse
DailyFinance
24 Oct 14 15:10:43
Can a former Home Depot exec renovate J.C. Penney? http://t.co/4LSTFlK2N3 $JCP $HD
Stockaholics
24 Oct 14 14:37:20
Our Penny Stock Alerts Gained 371% In 2 weeks! Sign Up For Free Text Alerts For Our New Pick: http://t.co/Wsu24zYrur $JCP $AQUM $WSGI
Daily Contracts
24 Oct 14 13:59:01
Real-Time feed of company contracts, original agreements and executive updates from J. C. Penney $JCP http://t.co/MvHvXjt6Lg
Chuck Faulkner
24 Oct 14 13:54:25
Loven SHLD (sears) After last nights post about JCP & SHLD I decided to take my first stock position in $JCP $SHLD http://t.co/jKbTnRMO5B
Karen RobinsonJacobs
24 Oct 14 13:32:53
Former J.C. Penney CEO #RonJohnson launching a shopping startup next year $jcp http://t.co/ak7ptwZ6s6
JCPenney News
24 Oct 14 13:31:18
RT @MariaHalkias: JCPenney's fashion statement has been less about celebrity entertainers. Nicole Miller vs. Jennifer Lopez $JCP http://t.c…
John Earl Burnett
24 Oct 14 13:16:07
#JCPenney Set to Launch #MediaAgency Review. #OmnicomMediaAgency http://t.co/Ekg556KFHp $JCP
Vic Scherer
24 Oct 14 13:08:24
Taking $JCP off my watchlists and I'm going to allow it to be LBO'd w/o me, or whatever. Faders, your cue!
Mark S Boone
24 Oct 14 12:28:26
$JCP You bearish wackos can't read the eye chart at the Dr's office. No volume, Yo! Can't sell off nuttin without volume. Pinning some opex!
Jeff
24 Oct 14 12:12:50
$jcp average daily volume has been 19m shares might not crack 8-9m shares today opex & tree shake will test $8 next week
Jeff
24 Oct 14 12:10:19
The volume on the red day in $jcp seems like a tree shake & opex move to the $7.50 area
DT Advanced
24 Oct 14 12:09:15
Trading Tally for the Week 10/21/2014 $GTI $JCP $MXIM $ELY $AKS http://t.co/Of5IYqJgyr
Jeff
24 Oct 14 11:54:15
RT @MariaHalkias: JCPenney's fashion statement has been less about celebrity entertainers. Nicole Miller vs. Jennifer Lopez $JCP http://t.c…
MariaHalkias
24 Oct 14 11:32:03
JCPenney's fashion statement has been less about celebrity entertainers. Nicole Miller vs. Jennifer Lopez $JCP http://t.co/68nHewuUkW
TV_Trading Ideas
24 Oct 14 10:44:23
J.C. Penny - The Battle of Retrieving the Broken Supports $JCP http://t.co/P3iaCS5Sjl
Jeff
24 Oct 14 10:24:47
@carlquintanilla $gs ignores that gas prices fell recently $jcp guidance probably did not assume gas falling under $3
dels101
24 Oct 14 10:17:49
RT @carlquintanilla: Goldman cuts $ANF, $AEO -- on recent weak guidance from $JCP, $URBN, $VFC http://t.co/YQ3iY5eio7
Stockaholics
24 Oct 14 10:08:42
Our Penny Stock Alerts Gained 371% In 2 weeks! Sign Up For Free Text Alerts For Our New Pick: http://t.co/dLDRavoCi4 $JCP $AQUM $WSGI
Jeff
24 Oct 14 09:50:52
@WolfSheepTrader same here in OH $jcp home center part now open, was under construction last year
Neal Bernard
24 Oct 14 09:36:10
@jeffereytweets 5047 contracts is a good sign. Like you said, $JCP could make same move as last year w/ cheap oil. Stores by me look good
Carl Quintanilla
24 Oct 14 09:31:54
Goldman cuts $ANF, $AEO -- on recent weak guidance from $JCP, $URBN, $VFC http://t.co/YQ3iY5eio7
Jeff
24 Oct 14 09:13:03
@WolfSheepTrader look at the open interest on the $8 10/31 weekly calls, looking like a good bet...I have 300 of them $jcp
Neal Bernard
24 Oct 14 09:11:42
@jeffereytweets I agree $SHLD is kicking ass ... 24 to 40 in 2 weeks Lol. Looks like $JCP is forming new base at 7.7
Jeff
24 Oct 14 08:26:21
Maybe $jcp should announce some store closings & lay-offs, looks like it is positive for $shld
Chris Lau
24 Oct 14 08:19:46
Here are some stocks that benefit from low oil prices $JCP $UAL $DAL $M $KSS | http://t.co/IOiZW10aLX
kam clark
24 Oct 14 07:43:50
RT @daily_finance: Can a former Home Depot exec renovate J.C. Penney? http://t.co/4LSTFlK2N3 $JCP $HD
US_proptrader
24 Oct 14 07:34:18
$CIG $CLF $EBR $FBR $GGB $GOL $JCP $NVAX $PVA autocharts @ http://t.co/hj7PGeTQk3
invest correctly
24 Oct 14 07:24:39
Weekly Recap: Marvin Ellison meet J.C. Penney $JCP http://t.co/LpruSpGIJl
Daily Contracts
24 Oct 14 06:51:01
Real-Time feed of company contracts, original agreements and executive updates from J. C. Penney $JCP http://t.co/MvHvXjt6Lg
Chayton Falke
24 Oct 14 06:15:02
Top Twenty Recent Exits #6: Covered $JCP short for a 19.03% gain in 12 days! #trading #JCP #forex #stocks
DailyFinance
24 Oct 14 06:10:56
Can a former Home Depot exec renovate J.C. Penney? http://t.co/4LSTFlK2N3 $JCP $HD
US Banking News
24 Oct 14 06:06:58
J C Penney Company Gets Average Rating of Hold from Analysts $JCP http://t.co/QElzkQ8IFh
Anne Marie Baiynd
24 Oct 14 05:32:19
"@ycharts: Wal-Mart: In Retail Glut http://t.co/e0gQXzX1Wz $WMT $AMZN $MCD $IBM $CMG $BABA $DLTR $FDO $DG $SHLD $JCP $M $TJX"
Battleflag
24 Oct 14 05:15:59
some short watches $ezch $fdp $soda $twi $sfly $amd $aegn $JCP
FonsieTrader
24 Oct 14 04:47:04
Bullish MACD Crossovers 2/3 $GGB $HAL $HES $HZNP $IDTI $ING $JASO $JCP $LGF $LPI $MACK $MS $NFX $NOK $ONNN $PQ $PTEN http://t.co/qVDoY7yvof
Jeff
24 Oct 14 04:08:00
@WolfSheepTrader it will, did u see the 13 month chart of $jcp I posted? Retail environment is better w/ lower gas price going into holiday
TALENTEDBLONDE
24 Oct 14 03:46:31
RT @Dan_Kinsella: One week before Halloween 2014, check out how "spooky" right @TALENTEDBLONDE was in 8/2013 about $SHLD & $JCP ..http://t.…
Dan Kinsella
24 Oct 14 02:00:02
One week before Halloween 2014, check out how "spooky" right @TALENTEDBLONDE was in 8/2013 about $SHLD & $JCP ..http://t.co/pXsT2ctUOI
Investors Hangout
23 Oct 14 23:39:39
$SEGI Ex-Div Date Click Here: http://t.co/x7ErfYmrz1 Also See: $QID $YPF $JCP $HAL ~
Stock Relay
23 Oct 14 23:28:08
$HRZN Quotes Click Here: http://t.co/HtVEpS6UGi Also See: $AFW $NEV $JCP $VLO ~
Chuck Faulkner
23 Oct 14 22:30:29
I didn't really answer your question, did I. Using my short term indicators. Entry/exit DMI and 5,10,20 MAs ar $JCP http://t.co/PcaaVcpvW3
				
				
  +Follow October 4, 2013 9:00AM
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