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

  +Follow October 4, 2013 9:00AM
Tickers Mentioned:

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
31 Oct 14 10:09:52
$JCP $amd $tsla bear flag watch
Alexander Morris
31 Oct 14 10:06:48
$JCP: At 1DyHIGH=7.68, hits:2, ch:+0.7%, phNearOp:BrkPLo+PHi[+201.7%], 10:1Accel+, tf:0110011, BigFlt:291M, HiPctSht[30%:4d]
Chris Kader
31 Oct 14 09:47:11
Match $JCP option flow against chart - traders looking to fill big ass gap next week. $JCP. @talkequities @wandy922
31 Oct 14 09:18:21
#Ebola revenues for $LAKE announced. $SMED has 4 ways Ebola positively impacts their bottom line: http://t.co/vxKje2CxK4 $JPM $JCP $APC
Jacob Wolinsky
31 Oct 14 08:40:30
$JCP $CROX $CCL $SHLD $NQ #ScaryStoriesIn5Words
Teddy Vallee
31 Oct 14 06:01:13
@indievestments thank you. Good to test theses. Think $JCP and $M will emerge as winners; $KSS and $SHLD faders. Why is $OSTK so cheap?
31 Oct 14 05:49:16
$jcp money flow into jcp is spiking share price will follow test the 200 day soon
31 Oct 14 05:34:13
@Inbox101 does it stand to reason that there is a lot of market share for $jcp and $kss to lose then? No position.
Kenneth Rapoza
31 Oct 14 05:27:05
Usually I hate the Today Show, but today's SNL skit tribute was actually pretty good. Made me smile. Tho not sure $JCP will like Mom Jeans.
31 Oct 14 04:26:30
Our Penny Stock Newsletter Alert On MGON Closed up 112.5% Today! Major News: http://t.co/gDCrqEFOy6 $JCP $AQUM $WSGI
Penny Stock Secret
31 Oct 14 04:03:42
The Hottest Way to Make Millions From Stock Market.Click HERE http://t.co/SVqoMkrw2z .. $JCP $AQUM $WSGI
31 Oct 14 00:21:45
Our Penny Stock Newsletter Alert On MGON Closed up 112.5% Today! Major News: http://t.co/dvxYQnSJab $JCP $AQUM $WSGI
30 Oct 14 23:31:42
Partner Jet $PJT.V is up 183% this week after Q3 release with more gains coming. Find out why: http://t.co/MEpEjkCm4H $JPM $JCP $APC
Buttercup $BABA91914
30 Oct 14 19:52:06
“@MarketWatch: Some of the sneaky ways stores keep tricking customers: http://t.co/Q3sZLUXk9j http://t.co/u0NDGR90kq” #shopping $JCP $KSS $M
P. Ricatti
30 Oct 14 19:47:08
@pricatti comparto el fracaso con Soros que estuvo comprando en 1Q14. Entre oro, plata y $JCP sus peores inversiones http://t.co/ezxL378Esz
30 Oct 14 17:16:53
Our Penny Stock Newsletter Alert On MGON Closed up 112.5% Today! Major News: http://t.co/dvxYQnSJab $JCP $AQUM $WSGI
Dr. Tom Jerry
30 Oct 14 15:15:39
@mikeo188 if ur r gonna use this logic then why not $JCP loss for #ackman? $HLF
Stock Moo
30 Oct 14 15:02:25
$jcp: J. C. Penney Company, Inc. to Report Third Quarter 2014 Financial Results on November 12, 2014 at 4:00 p.m. ET http://t.co/jLSakPDDOX
Stock Moo
30 Oct 14 14:02:15
$jcp: J. C. Penney Company, Inc. to Report Third Quarter 2014 Financial Results on November 12, 2014 at 4:00 p.m. ET http://t.co/1j6Z3K4TH7
BV Services
30 Oct 14 13:31:59
$JCP J. C. Penney Company, Inc. to Report Third Quarter 2014 Financial Results on November 12, 2014 at.. http://t.co/qDyYr2HUEc
30 Oct 14 13:31:51
$JCP J. C. Penney Company, Inc. to Report Third Quarter 2014 Financial Results on November 12, 2014 at 4:00 p From our Stock News Alerts App
30 Oct 14 13:04:11
Cut $WB b/e $SUNE 18.95 -2.3 $JCP b/e
Seeking Alpha
30 Oct 14 11:22:42
Kohl's: Time To Shop Elsewhere http://t.co/QjfrdCJER0 $JCP $M $KSS
Mark Trader
30 Oct 14 11:20:48
$ELED finally breaking out of pattern. This one has a history of making big moves. $ZNGA $EGO $BLTA $JCP $ARAY $NVAX $GGB $AU $GFI $APT $SD
30 Oct 14 11:15:30
@jeffereytweets I haven't looked at $jcp. Doing well also? Yeah markets rallied hard. Do you understand all this broke shit going on today?
Sterne Agee
30 Oct 14 11:13:18
J C Penney Company Price Target Cut to $8.00 $JCP @SterneAgee http://t.co/UJAJCvuthV
30 Oct 14 11:11:33
@Btek02 like I said buy the dip markets rally hard $spy $jcp
30 Oct 14 09:44:17
$jcp maybe they will finally let this run next week appears they want this to stay here and not run up to test the 200 day sss next week
30 Oct 14 09:13:26
Over the next 3 yrs $jcp stock is going outperform $m $kss $tgt $wmt it is a buy here with both fists
Stock Moo
30 Oct 14 09:02:19
$jcp: Black Friday starting earlier and earlier—Amazon and Kohl’s join the fray http://t.co/jUWBbWKwTV
30 Oct 14 08:35:19
$jcp if there were an LBO it would probably be hostile as the board would want $15-16 as a starting price to even discuss a sale
30 Oct 14 08:33:21
$jcp $8.53/shr in tangible book value, when they execute on their turn around this will be $15 in a blink and $30 in 3 yrs
Alexander Morris
30 Oct 14 08:14:43
$JCP: Exc 1DyHIGH=7.60, hits:3, ch:+0.3%, phNearCl:BrkPLo+PHi[+200.4%], tf:0111101, BigFlt:291M, HiPctSht[30%:4d], DyVol:2.5M:0.2x:0.1x
Teddy Vallee
30 Oct 14 07:48:36
RT @HedgeyeRetail: For those keeping score, $JCP gave us 10x more information in its Analyst meeting last month in just 3 hrs, than $KSS di…
30 Oct 14 06:37:40
Took down some $JCP 7.65
30 Oct 14 06:11:20
RT @HedgeyeRetail: For those keeping score, $JCP gave us 10x more information in its Analyst meeting last month in just 3 hrs, than $KSS di…
Julian Close
30 Oct 14 06:08:31
Critical Alerts for $GE, $AMED, $RFMD, $JCP and $SCTY from InvestorsObserver today: http://t.co/EHaJHmKHm7 #OptionsTrading #CoveredCalls
Investors Observer
30 Oct 14 06:08:30
Critical Alerts for $GE, $AMED, $RFMD, $JCP and $SCTY from InvestorsObserver today: http://t.co/jrDQWEC2fy #OptionsTrading #CoveredCalls
Alan Robinson
30 Oct 14 06:00:17
@BrianSozzi @JeffMacke #USPS largest customer now is $AMZN with $JCP & $M also big $QVCB & $HSNI also quite sizable
Alan Robinson
30 Oct 14 05:50:41
@JeffMacke @BrianSozzi $urbn $M & based on mobile sales data $JCP $TGT $WMT have a shot to be on line powers but all far off now
Brynne Parrott
30 Oct 14 05:36:17
Peeps aren't only buying $AAPL products for Christmas. I'm buying my Aunt Fanny a sweater from $JCP
30 Oct 14 05:35:25
RT @HedgeyeRetail: For those keeping score, $JCP gave us 10x more information in its Analyst meeting last month in just 3 hrs, than $KSS di…
Brian McGough
30 Oct 14 02:20:03
For those keeping score, $JCP gave us 10x more information in its Analyst meeting last month in just 3 hrs, than $KSS did yesterday in 7 hrs
30 Oct 14 02:07:59
VIICQ Closed up 75% Yesterday! Special Update: http://t.co/8A33lxh1RR $JCP $AQUM $WSGI
WallStreet Pennies
30 Oct 14 01:52:39
Dollar$OnPennies: $JCP Gallery View http://t.co/tlzSwRJTSo
29 Oct 14 22:40:27
Hot fashion for cooler days http://t.co/kxMEH38cX8 $SHLDV $JCP $PLCE
29 Oct 14 22:08:45
$MLCG closed up 166.67% today! Huge News: http://t.co/JxSMla9Afn $JCP $AQUM $WSGI
29 Oct 14 18:11:40
$MLCG closed up 166.67% today! Huge News: http://t.co/JxSMla9Afn $JCP $AQUM $WSGI
Marc Hav FX
29 Oct 14 13:55:31
$JCP J.C. PENNEY COMPANY INC. (UPDATED 29OCT2014) http://t.co/orC0z1LlhR
Marc Hav
29 Oct 14 13:55:30
$JCP J.C. PENNEY COMPANY INC. (UPDATED 29OCT2014) http://t.co/92iFwejHtE
  +Follow October 4, 2013 9:00AM



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