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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
Retail Stores Feed
29 Sep 14 21:37:01
Anti-Gay Baker Brought To Tears Over Bakery Closing $jcp http://t.co/A9dsVReygi http://t.co/zbw2vuIpcg
Consumer Services
29 Sep 14 21:37:00
Anti-Gay Baker Brought To Tears Over Bakery Closing $jcp #consumerservices http://t.co/g2ALQ5YpVj http://t.co/1S2pIrnttg
strader55
29 Sep 14 20:04:44
nlightn: $JCP,...J.C. Penney outlook hiked at Moody's - nlightn http://t.co/LsFcAKtneX
Perfor Mance
29 Sep 14 20:01:08
Option Millionaires: nlightn: $JCP,...J.C. Penney outlook hiked at Moody's http://t.co/4AfjF4xljm
Stockaholics
29 Sep 14 14:45:40
$VOIS gained 218.52% in less than 3 weeks, after our Penny Stock Alerts! Major Update: http://t.co/LcBxWgdLUh $JCP $AQUM $WSGI
Mark S Boone
29 Sep 14 14:36:14
$JCP While everyone was staring at the stock....they sneaked ya! LOL!! Opps! Always watch the bonds and the options. They always know 1st.
Todd Ingersoll
29 Sep 14 13:56:39
RT @ACInvestorBlog: $JCP Moody's Affirms Ratings on JC Penney; Outlook Raised from Negative to Stable
Greg Joslyn
29 Sep 14 13:55:52
RT @qbeatsnews: Moody's lifts negative outlook on retailer, citing refi, performance: http://t.co/ZRiMVzCeTH $JCP #HY #retail
Media Sentiment
29 Sep 14 13:55:04
$JCP received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 461
Antonio Costa
29 Sep 14 13:54:29
$JCP Moody's Affirms Ratings on JC Penney; Outlook Raised from Negative to Stable
Quantpost Service
29 Sep 14 13:53:08
$JCP News Alert: http://t.co/fO76YCTyqC Updated options view: https://t.co/x5uunD2KP3 All options views: https://t.co/nRl8BLoEir
MarketCurrents
29 Sep 14 13:53:07
J.C. Penney outlook hiked at Moody's http://t.co/c1js864vuj $JCP
Henk Huising
29 Sep 14 13:51:20
Moody's verhoogt outlook JC Penney naar Stabiel $JCP
qbeats news
29 Sep 14 13:51:08
Moody's lifts negative outlook on retailer, citing refi, performance: http://t.co/ZRiMVzCeTH $JCP #HY #retail
Media Sentiment
29 Sep 14 13:50:20
$JCP received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 460
SIAnalystWire
29 Sep 14 13:48:18
Moody's Raises Outlook on J.C. Penney $JCP to Stable; Ratings Affirmed http://t.co/sqcRwDReiI
DR JAMES CABOT
29 Sep 14 11:41:44
RT @RiskReversal: ICYMI: Friday's Notable Options Activity: $SPY, $VIX, $HYG, $JNS, $JCP, $AVP http://t.co/UNKUW1cKgU @EnisTaner
Dan Nathan
29 Sep 14 11:39:14
ICYMI: Friday's Notable Options Activity: $SPY, $VIX, $HYG, $JNS, $JCP, $AVP http://t.co/UNKUW1cKgU @EnisTaner
Investors Hangout
29 Sep 14 10:23:10
Emylers: $JCP Up to date company activities and other http://t.co/bu9y4TB6RT
Investors Hangout
29 Sep 14 10:23:07
Emylers: $JCP Up to date company activities and other http://t.co/Dfi8bpHRzP
danrocks
29 Sep 14 10:11:32
$NEM Starting to get interesting $XLK $AA $DXJ $MU $JCP http://t.co/FNYLGuqPxD
iHangout
29 Sep 14 10:09:11
http://t.co/vVojvVrNNL Emylers: The Launch Pad: $JCP Up to date company activities and other http://t.co/JNa7V3ccax
Emylers
29 Sep 14 10:06:50
$JCP Up to date company activities and other important information about $JCP http://t.co/7MEtjuRBMc
Mike
29 Sep 14 09:21:48
Last time I checked $JCP doubled in price with there "intern" CEO so be cautious in selling $APP as opportunity may be in front of ur eyes!
Stockaholics
29 Sep 14 09:10:54
Subscribe to our penny stock newsletter, for FREE! We have some huge picks on the way: http://t.co/buedBpPSUK $JCP $AQUM $WSGI
Mark S Boone
29 Sep 14 09:00:13
$JCP Consolidating. Going to pop or drop. My bet is on pop. JMO
James Milkavich
29 Sep 14 08:50:55
@MarkBoone17 $JCP is going to pop closer to October 10th!
Mark S Boone
29 Sep 14 08:34:11
$JCP There was a Buyer of 12,300 of the Oct10th 10 calls for 0.26 in the afternoon of Friday. Yeah....think about that.
Investors Hangout
29 Sep 14 08:10:36
chartguy89: RSX Stock Chart $RSX $SDS $JCP $USLV http://t.co/iFYUIT3Esj
Investors Hangout
29 Sep 14 08:09:57
chartguy89: RSX Stock Chart $RSX $SDS $JCP $USLV http://t.co/mYGTUiYj84
Kooler Aid
29 Sep 14 08:04:45
$MLNX $SHLD squeeze mode // $JCP $BBRY usual suspects also on watch
chartguy89
29 Sep 14 07:57:22
RSX Stock Chart $RSX $SDS $JCP $USLV http://t.co/1UV0vXUv2T http://t.co/4wjLkYlJxu
leahanne
29 Sep 14 07:56:11
$VTI Total Stock Market ETF Vanguard (VTI) 101.53 -0.35 (-0.34%) $UGAZ $ECA.TO $JCP http://t.co/P12PX2VVzd
AlgoWar1337
29 Sep 14 07:52:24
RT @Alpha7Trading: #Stocks #Trading #Watchlist for Monday, September 29, 2014 - $JCP $ITUB- $GLUU http://t.co/jVlvEx06UO
Proprietary Trading
29 Sep 14 07:51:43
#Stocks #Trading #Watchlist for Monday, September 29, 2014 - $JCP $ITUB- $GLUU http://t.co/jVlvEx06UO
lookn4wins
29 Sep 14 07:49:55
$SLV Parabolic SAR $SLV Most recent stock chart and technical analysis. $NETE $JCP $JPM $PWE $VRTX $XLF http:/ http://t.co/jDzYGhYHaO
CW_McNally
29 Sep 14 07:44:14
In #following the rules of a #trendfollowing #system sold these #tickers from 9/22 thru 9/26 $JCP $GPK $MS $BK $IVZ $WIN $RSG $NOK $study
Taz Lakhany
29 Sep 14 07:39:01
@MarkBoone17 U R the bitch who's gona get fucked hard by $JCP, BITCH....lol....JMO..GLTA..lmao
Investors Hangout
29 Sep 14 07:38:00
Emylers: $JCP Up to date company activities and other http://t.co/hUAA1SGxF3
Investors Hangout
29 Sep 14 07:38:00
Emylers: $JCP Up to date company activities and other http://t.co/0AGVegtpBv
Emylers
29 Sep 14 07:11:45
$JCP Up to date company activities and other important information about $JCP http://t.co/RH0lZSurwq
RB Trader
29 Sep 14 06:49:17
Largest Size Trades Friday 2 Watch $JCP OCT $10 #Calls @ $0.26 BOT 12,300 v 993 OI 12.39X OI $319,800 value http://t.co/WmqgpsdPNq
RB Trader
29 Sep 14 06:49:17
Largest Size Trades Friday 2 Watch $JCP OCT $10 #Calls @ $0.26 BOT 12,300 v 993 OI 12.39X OI $319,800 value http://t.co/kC1zp0LjSr
RB Tech Social
29 Sep 14 06:49:17
Largest Size Trades Friday 2 Watch $JCP OCT $10 #Calls @ $0.26 BOT 12,300 v 993 OI 12.39X OI $319,800 value http://t.co/hKdMKke0q4
Stock Blender
29 Sep 14 06:44:32
$JCP adding to jan calls. Waiting on $SLV $MBLY.
Charlie Vallee
29 Sep 14 06:10:01
RT @SeekingAlpha: GoPro: On The Way To A 52-Week Low http://t.co/UECXSSJRG6 $GOOGL $GRMN $JCP $MSFT $SNE $AAPL $GPRO
Steven Latuso
29 Sep 14 05:58:02
$JCP Either buy more or look away for 2 days. Shorts are cooking their books for the end of Q3. Goes higher in Q4. Lots of catalysts ahead.
Mark S Boone
29 Sep 14 05:41:55
$JCP Going to start off ugly today, market wide actually. However, longs hold the core very tightly, no worries. JMO. BUY IT LOW!! GLTA
FonsieTrader
29 Sep 14 05:38:24
$JCP Short bellow $9.54 http://t.co/wCXG0yjvnd
Scott Thomas
29 Sep 14 05:08:45
RT @LivevolForums: IV30(TM) GAINER $CDNS +52.18% $NFLX +46.66% $JNS +37.56% $AGIO +37.1% $JCP +23% $SHLD +19.52% $TK +17.57% http://t.co/gw…
				
				
  +Follow October 4, 2013 9:00AM
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