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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
Codi Smith
23 Oct 14 00:59:31
Commented on StockTwits: also selling $hk 2 add $jcp, buying oversold %r, long @ $6's http://t.co/wSp8F3ZFSP http://t.co/Cd6ak6nPiW
IH News Desk
23 Oct 14 00:49:45
$AKRX Shares Click Here: http://t.co/poZmvvDYTo Also See: $HESG $JCP $PCLN $TQQQ ~
Sergey Kovalonok
22 Oct 14 22:46:16
$JCP forget about autumn recovery
#TraderJ1
22 Oct 14 22:24:17
$JCP dump into earnings IMO a test of 6.30 area will give in
Stock Relay
22 Oct 14 20:37:47
$CYBR Message Board Posts Click Here: http://t.co/ZEVAnZJRLw Also See: $FNMA $BIDU $JCP $SSYS ~
Stock Relay
22 Oct 14 17:23:38
$BIIB Stock Forum Click Here: http://t.co/V11lvt0G0B Also See: $MLNX $SOXS $CREE $JCP ~
ZornTrader
22 Oct 14 17:01:30
RT @StockSignaling: After Hours Volume Leaders: $YELP $EMC $CREE $HPQ $MAT $TXN $KEY $HST $ODP $JCP $HAL $TSLA $AVNR $FSP $RDN http://t.co/…
Joey
22 Oct 14 17:01:12
RT @StockSignaling: After Hours Volume Leaders: $YELP $EMC $CREE $HPQ $MAT $TXN $KEY $HST $ODP $JCP $HAL $TSLA $AVNR $FSP $RDN http://t.co/…
Stock Signaling
22 Oct 14 17:01:07
After Hours Volume Leaders: $YELP $EMC $CREE $HPQ $MAT $TXN $KEY $HST $ODP $JCP $HAL $TSLA $AVNR $FSP $RDN http://t.co/Vtx6dLy0Nw #daytrader
Brian Sozzi
22 Oct 14 16:38:17
!! $JCP “@jcpenney: @BrianSozzi Thank you! :)”
Timothy Connolly CFA
22 Oct 14 16:03:49
RT @Briefingcom: $JCP: J. C. Penney announces defeasance of 6.875% medium-term notes due 2015 http://t.co/jRVXvXrmkO
Briefing.com
22 Oct 14 16:02:51
$JCP: J. C. Penney announces defeasance of 6.875% medium-term notes due 2015 http://t.co/uZw4NQNSI8
Stock Moo
22 Oct 14 14:54:56
$jcp: JCPenney Announces Defeasance of 6.875% Medium-Term Notes due 2015 http://t.co/ifS6j0qyj1
Stock Moo
22 Oct 14 14:54:47
$jcp: JCPenney Announces Defeasance of 6.875% Medium-Term Notes due 2015 http://t.co/cS66wdsa1n
Stock Relay
22 Oct 14 14:54:20
$ACHN Prev Close Click Here: http://t.co/eEP9XKugPy Also See: $SQQQ $ERX $EPI $JCP ~
Cloud Chipotle
22 Oct 14 14:44:48
@JacobWolinsky @SconnieTrader @BrattleStCap $KSS+ $JCP+ $SHLD, $AOL is the official tech vendor/message board supplier apparently
Jacob Wolinsky
22 Oct 14 14:43:58
@SconnieTrader @CloudChipotle @BrattleStCap I thought #shitco was $JCP and $SHLD, AOL joined for 3 way merger?
Stockaholics
22 Oct 14 14:28:56
Our Penny Stock Picks Gained 371% In 2 Weeks! Get Our Next Pick Early: http://t.co/z2noBUWrEP $JCP $AQUM $WSGI
4-traders.com
22 Oct 14 14:05:14
J C Penney : JCPenney Announces Defeasance of 6.875% Medium-Term Notes due 2015 http://t.co/veCIY48l6N $JCP
$Stocknewsalerts
22 Oct 14 14:02:44
$JCP JCPenney Announces Defeasance of 6.875% Medium-Term Notes due 2015 From our Stock News Alerts App
BV Services
22 Oct 14 14:00:59
$JCP JCPenney Announces Defeasance of 6.875% Medium-Term Notes due 2015.. http://t.co/5vQqitIM38
Jeff
22 Oct 14 13:24:27
Gas prices at the pump should fall below $2.75 in November, which will be great for retailers $jcp
Jeff
22 Oct 14 13:15:06
$jcp closed below $7.50 chart is showing the MAcD could turn positive this week, low gas prices r a positive 4 all retail not in estimates
Mark S Boone
22 Oct 14 12:45:16
$JCP Market saying, NOT TODAY. Support failed. Need some volume later in the week or she eats dirt again. JMO
Neal Bernard
22 Oct 14 11:57:15
@wellsmontague @RAYSHOWPAY $JCP holding 7.5 support. Looking for stair step to 8+
Investors Hangout
22 Oct 14 11:25:57
clayton: $JCP 7.73 http://t.co/28JqhJmHIh
Investors Hangout
22 Oct 14 11:25:47
clayton: $JCP 7.73 http://t.co/ToQrTCJul9
Zero Filter
22 Oct 14 11:12:27
$ZQK daily looks like a #DC skater's board ramp $TGT $JCP $M #cnbcfastmoney #seekingalpha #Consac
iHangout
22 Oct 14 11:05:17
http://t.co/vVojvVrNNL clayton: Estrella's Sizzling Hot Stock Plays: $JCP 7.73 http://t.co/bEhtvGeatq
clayton
22 Oct 14 11:02:25
$JCP 7.73 http://t.co/0gFz3HWLNJ
Susan Schulte
22 Oct 14 10:51:40
RT @StaceyRetail: thanks $M has been great run +30% but your friends are scaring me. when the street breaks up with you i will be back for …
Stacey Widlitz
22 Oct 14 10:43:30
thanks $M has been great run +30% but your friends are scaring me. when the street breaks up with you i will be back for you $JCP $GPS $URBN
Jeff
22 Oct 14 10:42:20
$jcp MACD should flash a bullish crossover tomorrow or today if this runs up & cause a run up to $8
maximus
22 Oct 14 10:30:07
$jcp ..strong like bull . really ?
Stockaholics
22 Oct 14 10:28:40
Our Penny Stock Picks Gained 371% In 2 Weeks! Get Our Next Pick Early: http://t.co/z2noBUWrEP $JCP $AQUM $WSGI
Investors Hangout
22 Oct 14 10:18:27
danrocks: $QLD On Watch $BB.TO $BIDU $JCP $XHB $DIS http://t.co/kBOLnetw8i
Investors Hangout
22 Oct 14 10:18:21
danrocks: $QLD On Watch $BB.TO $BIDU $JCP $XHB $DIS http://t.co/UvYJjbWUsF
danrocks
22 Oct 14 10:11:41
$QLD On Watch $BB.TO $BIDU $JCP $XHB $DIS http://t.co/bnxW0oCAsl
Investors Hangout
22 Oct 14 09:47:33
DennyT: CELG Bloomberg $CELG $IYT $T $JCP $TQQQ http://t.co/WPRXsmqr0H
Investors Hangout
22 Oct 14 09:47:13
DennyT: CELG Bloomberg $CELG $IYT $T $JCP $TQQQ http://t.co/B7mrDQbDoR
TraderBlood
22 Oct 14 09:37:36
$CREE wait on any possible buyback... It would be good to see a $ESI / $JCP run up with short covering.
DennyT
22 Oct 14 09:20:48
CELG Bloomberg $CELG $IYT $T $JCP $TQQQ Sell?,Candlesticks,Current Price,News,Showing on my streamers Stock Qu http://t.co/xgE0oTPakW
HadjPadjj
22 Oct 14 09:11:32
$JCP 60 Min chart looks like it wants to pop soon now after bottoming out.
HadjPadjj
22 Oct 14 08:59:05
Took some $JCP Nov Weekly $8 calls at .20
Mark S Boone
22 Oct 14 08:51:01
$JCP Flagging. Not stable though....let's see if it follows through. JMO.
lookn4wins
22 Oct 14 08:30:21
$VSR Stock Chart $VSR Most recent stock chart and technical analysis. $SDRL $XLK $JCP $SSO $CLF $CSX http://st http://t.co/y5pUYSiif9
BlockTradeAlert
22 Oct 14 08:26:27
BLOCK TRADE: $JCP 320,000 shares @ $7.70 [11:26:26]
TP Strategic Partner
22 Oct 14 08:09:52
$JCP $BBRY $F $GLW We've added to our stakes in all 4 of these stocks on option exercise
Investors Hangout
22 Oct 14 07:44:36
danrocks: $JCP Buzz $SIX $XLE $PSID $GDX $GOOG http://t.co/EeRVjIEScK
Investors Hangout
22 Oct 14 07:44:36
danrocks: $JCP Buzz $SIX $XLE $PSID $GDX $GOOG http://t.co/IRMngMmqys
				
				
  +Follow October 4, 2013 9:00AM
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