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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
Ashish Nagi
9 Jul 14 18:57:03
Today's Prediction Accuracy: $JCP Low: 98.56% High: 98.3% #stocks #jcpenny #PredictiveAnalytics #trading At least I predicted the jump!
Financial Headlines
9 Jul 14 18:28:31
$JCP: Appeal May Come Back to Bite J.C. Penney http://t.co/OlnVawfF63
Rosner Stocks
9 Jul 14 18:23:38
Rosner: JCP Penney (J.C.) Co., Inc. (Holding Co.) $JCP http://t.co/doUpIcgX8b
Langan Stocks
9 Jul 14 18:23:37
Rosner: JCP Penney (J.C.) Co., Inc. (Holding Co.) $JCP http://t.co/BqHD4xBSix
Rosner Stocks
9 Jul 14 18:22:19
JCP Penney (J.C.) Co., Inc. (Holding Co.) $JCP Company Overview Stock Message Board http://t.co/qMVpJlfRvD http://t.co/JZb3UkcoCl
Nephihah Coomber
9 Jul 14 16:43:06
$FOSL Todays Stocks you should Watch $JCP $BYI $AMZN #financialnews http://t.co/GTJLjLHgqD
Stockaholics
9 Jul 14 16:25:46
Platinum Members saw our Penny Stock Picks gain 4,000% in 4 months this year! Huge Update: https://t.co/M8oXhykQpa $JCP $AQUM $WSGI
Milimili Fidler
9 Jul 14 15:12:06
$RAX Get the latest on $JCP $VMW $GRPN I suggest http://t.co/SXdu16EEsf
Odolf Caldecourt
9 Jul 14 15:09:07
Are you Investing in $JCP $XRX $GHC $TUR #financialnews http://t.co/VLhLIXLOa9
Kyan Bakeru
9 Jul 14 14:36:55
Should you buy $JCP $CELG $PF $HIT View now RATE_LIMIT_EXCEEDED
Gary Manzano
9 Jul 14 14:30:32
@canuck2usa Jumped in $JCP with ya. Sold 1/4 of $PRAN 20%, order in for more @ 3 then will keep some :)
Market Monitor
9 Jul 14 14:28:10
$JCP: JC Penney appeals Macy's, Martha Stewart ruling http://t.co/7OpXGT6yZ5
Jambalini Hasker
9 Jul 14 14:09:32
It could be breaktout time on $D $VIAB $JCP $S #financialnews http://t.co/T7JJ3Wq94r
Elvis Dacanayp
9 Jul 14 13:45:05
$MKL Get the latest on $JCP $LMCA $AIG Click RATE_LIMIT_EXCEEDED
Milan shah
9 Jul 14 13:25:35
RT @mnycx: $JCP let's see if can close @ HOD or better later. Tomorrow 9.30-9.50 and Friday 10+ would be sweet. #squeeze
DeltaNinety
9 Jul 14 13:01:08
Nice move in $COST and $JCP the current open equity swing positions, $ALSN doing well. $GLD spread trade off to a good start
12Stocks.com
9 Jul 14 13:00:38
MidCap #Stocks Performance $AA $AAL $SDRL $HAR $SIG $GRPN $LRCX $JCP $KMX $NEM $AMAT $CMG $SCTY $ORLY more@ http://t.co/H27z0IZCEk
Gavin Dangerson
9 Jul 14 12:45:13
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Equity Sense
9 Jul 14 12:45:11
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Mike L
9 Jul 14 12:45:09
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Ozzie Daily
9 Jul 14 12:32:27
$DD #Stock Watchlist. Dont be left behind $JCP $BBT $USD #overvalued RATE_LIMIT_EXCEEDED
Jason Tinez
9 Jul 14 12:31:03
Thinking about trading JC Penny check out this free analysis for option trading http://t.co/2TQTMPcoRW $jcp
Yash Shah
9 Jul 14 12:30:56
RT @mnycx: $JCP boom. Break out? #RoadTo11OnFriday #Squeeze lol
Yash Shah
9 Jul 14 12:30:45
RT @mnycx: $JCP let's see if can close @ HOD or better later. Tomorrow 9.30-9.50 and Friday 10+ would be sweet. #squeeze
Market Updates
9 Jul 14 12:28:07
$JCP: Critical Alerts For Zynga, Bunge, JC Penney, Bitauto, and Shire Released By InvestorsObserver http://t.co/7BnGY6IZU0
△
9 Jul 14 12:09:35
$JCP let's see if can close @ HOD or better later. Tomorrow 9.30-9.50 and Friday 10+ would be sweet. #squeeze
Stock Forums
9 Jul 14 12:04:03
$BMIN Shares http://t.co/HgI8LOyBGt Also See: $JCP $BMIN $AAPL $SRGL ~
DayTrading Power
9 Jul 14 11:56:23
Daytraded #stocks : $LTS $NQ $AA $ITUB $USU $AVAV $FB $LXRX $YHOO $JCP $PXLW $AAPL $ACST $BDSI $GRPN $GPRO $MU went 23/26 for +$1773
Victor Tellegio
9 Jul 14 11:48:49
Still holding $AA and $JCP
Chasing Stars
9 Jul 14 11:47:19
$BIG Dividend http://t.co/GoLvL8yIWf Also See: $F $CELG $JCP $MO ~
Jaron Babcockoa
9 Jul 14 11:45:39
$BMS Considering investing in $JCP $AGCO $WTW #moneymanagement RATE_LIMIT_EXCEEDED
Kasey Bautiste
9 Jul 14 11:37:49
Top Performing #Stocks today $RHI $CNX $JCP $BWP #Research RATE_LIMIT_EXCEEDED
IH NASDAQ OMX
9 Jul 14 11:35:50
$BIG Day Low http://t.co/jPSZhMXufc Also See: $FITX $JCP $ERBB $CAG ~
DK1
9 Jul 14 11:24:36
$JCP July 9 calls long @ .18/.19
Traders for ROI
9 Jul 14 11:13:04
Options analysis for J C Penny $JCP http://t.co/dGLiMnrGWc
sandy maltzman
9 Jul 14 10:49:51
Here is the Ron John Video: Stanford Graduate School of Business http://t.co/KmdkDubdnW $JCP
Donna Burton
9 Jul 14 10:48:46
RT @sandymaltzman: Ron Johnson Speaks - Former JCPenney CEO Tried To Resign Three Times http://t.co/zku3SCqE6E via @Racked $JCP
sandy maltzman
9 Jul 14 10:48:12
Ron Johnson Speaks - Former JCPenney CEO Tried To Resign Three Times http://t.co/zku3SCqE6E via @Racked $JCP
PolgarStocks
9 Jul 14 10:41:39
$ADCS Yield http://t.co/4mOs2TjS5x Also See: $FOXA $GPRO $ETFC $JCP ~
Horacio Keiferpu
9 Jul 14 10:37:37
$NE Are you hanging on to $JCP $PH $FXY Check out RATE_LIMIT_EXCEEDED
Jaycob Leatherbys
9 Jul 14 10:29:43
$BMY Are you Investing in $JCP $NSC $USD Worth a look RATE_LIMIT_EXCEEDED
Market Compass
9 Jul 14 10:28:11
$JCP: J.C. Penney Offers Big Upside Potential http://t.co/Zs8pbnw3sl
Andre Smith
9 Jul 14 10:27:25
$JCP $SODA - Bought more of each.
killagroove
9 Jul 14 10:21:11
RT @GrimesHoldings: If you own a company with stagnant top-line growth, $AA, $CAT, $ORCL, $JCP, and they are pursuing buybacks, run away.
Joe McCann
9 Jul 14 10:19:13
@angustweets @alunny I’m across the street from you office at NEMA. Should we meet up and talk about $JCP over lunch?
Investors Hangout
9 Jul 14 10:10:47
chartguy89: SRGL Stock Chart $SRGL $JCP $JO $SDS http://t.co/CUWXlBgahG
Investors Hangout
9 Jul 14 10:10:30
chartguy89: SRGL Stock Chart $SRGL $JCP $JO $SDS http://t.co/T6ezuuEQ0Z
Kolt Maghull
9 Jul 14 10:08:13
$KRC Do you think you should hold $JCP $LPNT $GOOG View now http://t.co/VEvazKfbWG
chartguy89
9 Jul 14 10:06:08
SRGL Stock Chart $SRGL $JCP $JO $SDS http://t.co/1UV0vYcEh1 http://t.co/x9slkdF8o0
IVolatility
9 Jul 14 10:03:49
RT Options Scanner shows J.C. Penney $JCP November 11 call option implied volatility decreased 5% to 47
				
				
  +Follow October 4, 2013 9:00AM
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