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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
16 Sep 14 03:09:51
http://t.co/l4qmOlz0qf Stock_Tracker: Stock DD Board: J.C. Penney Company Inc (JCP) 10.85 $JCP JC http://t.co/W5RKMp3jsY
16 Sep 14 03:07:16
J.C. Penney Company Inc (JCP) 10.85 $JCP JC Penney (JCP) Crosses Pivot Point Support at $10.95 Comtex SmarTren http://t.co/S47YwNY9Ed
WallStreet Pennies
16 Sep 14 01:59:12
Dollar$OnPennies: $JCP Gallery View http://t.co/36BZeOFe2m
16 Sep 14 01:53:19
@Ontiquate is winning with a score of $161.46! $JCP 1c07e #takethisbet http://t.co/FOP3hHKSj8
16 Sep 14 01:18:12
$AZFL Gained 68.2% In Just 3 Days, After Our Penny Stock Alert! Huge Update: http://t.co/f6EXGyxEe9 $JCP $AQUM $WSGI
16 Sep 14 00:15:07
RT @GoldenGlobeGGA: $JCP Short Percent of Float 29.52 %
15 Sep 14 23:09:06
JCP 10.85 Stock Charts $JCP J.C. Penney Co. Inc. (NYSE) Last Updated: 09/16/2014 01:09:09 JCP Stock Chart - 1 http://t.co/Hp7yT2rxzj
Ryan Mallory
15 Sep 14 20:03:40
Swing Trading Watch-List: $BK $IP $JCP $ENDP $IPG http://t.co/WzLMx8Eae0
15 Sep 14 19:32:51
$JCP Short Percent of Float 29.52 %
15 Sep 14 18:59:35
Our SECRET Alert on $INOH Closed Up 60% For Platinum Members Today! Major News: https://t.co/HzD6J3YtmW $JCP $AQUM $WSGI
Frikiton Xplosion
15 Sep 14 18:35:54
its time for $JCP = #Breakout Triple Bottom Definition | Investopedia http://t.co/xdmugZcNZs via @Investopedia
Trader News Daily
15 Sep 14 18:23:27
http://t.co/PeRPkYu8Uk ranked #1 for alerts last week with 275% in gains. Related: $RF $NETE $JCP $OREX $TRQ $RSH $ALKM $GRPN $GRCU $ZNGA
15 Sep 14 18:05:03
$JCP News: Time Is Ripe To Buy J.C. Penney Shares http://t.co/Cqd6xXrx1x
15 Sep 14 17:41:17
$JCP News: Christmas 100 days away: Hot gifts http://t.co/ZddHpzgluK
Greg Vautrinot
15 Sep 14 16:47:19
I love investing. $JCP http://t.co/bD3tUb98ZO
15 Sep 14 15:39:13
Our SECRET Alert on $INOH Closed Up 60% For Platinum Members Today! Major News: https://t.co/HzD6J3YtmW $JCP $AQUM $WSGI
VisualStock Resource
15 Sep 14 14:38:20
$JCP - Statement of Changes in Beneficial Ownership (4) http://t.co/I7C82zm8DL
Benjamin Baneker, MS
15 Sep 14 14:25:24
RT @JamesLanser: @ForbesBound $JCP is showing some uncertainty right now but it depends on what your portfolio looks like. maybe diversify?…
15 Sep 14 14:23:16
@ForbesBound $JCP is showing some uncertainty right now but it depends on what your portfolio looks like. maybe diversify?idk a lot on $BABA
Benjamin Baneker, MS
15 Sep 14 14:15:39
@JamesLanser thinking about liquidating all my $JCP and go all in with $Baba .. Thoughts?
Donald van Deventer
15 Sep 14 13:39:37
RT @KamakuraCo: J C Penney 1st On "Widest Credit Spread" Bond Rankings, September 12, 2014 $JCP http://t.co/px9QpzAxW3 via @salphatrending
15 Sep 14 12:21:48
Price/Vol. analysis $SPY #trendfollowing #trade #trend in these #tickers long $WIN $RSG $JCP $IVZ $SCHW $MS $GPK $NOK http://t.co/xtJvNDyFgH
15 Sep 14 12:09:22
$DKAM Shot Up 150% And Has Seen Over 400 MILLION Volume Today! Huge News: http://t.co/PmkoXscmSi $JCP $AQUM $WSGI
Tiernan Ray
15 Sep 14 11:54:24
Apple Watch: Retailers Will Have to Promote the Utility, Says Credit Suisse - Tech Trader Daily- $AAPL $JWN $JCP $M http://t.co/Rr9KyH2CkV
The Weitzman Group
15 Sep 14 11:45:45
RT @DBJDanielle: .@JCPenney renovating Golden Triangle Mall store to debut new look $JCP http://t.co/7dl8U5hGJF via @DallasBizNews
Andre Smith
15 Sep 14 11:38:32
$JCP Looking to add today. Just want it a touch cheaper...
Mark S Boone
15 Sep 14 11:36:28
$JCP Too busy watching a triple top when you should have been paying closer attention to the triple bottom it just made. Live & Learn. GL
Luis Gutierrez
15 Sep 14 10:57:17
$DRI Darden's challenge on Olive Garden is tougher than $JCP because JCPenney had no expectations while Darden is loaded like its pasta
Kooler Aid
15 Sep 14 10:33:31
$JCP 10.25/10.45 band it gets interesting
Candace Carlisle
15 Sep 14 10:28:29
RT @DBJDanielle: .@JCPenney renovating Golden Triangle Mall store to debut new look $JCP http://t.co/7dl8U5hGJF via @DallasBizNews
Danielle Abril
15 Sep 14 10:24:15
RT @DBJDanielle: .@JCPenney renovating Golden Triangle Mall store to debut new look $JCP http://t.co/7dl8U5hGJF via @DallasBizNews
Danielle Abril
15 Sep 14 10:24:11
.@JCPenney renovating Golden Triangle Mall store to debut new look $JCP http://t.co/7dl8U5hGJF via @DallasBizNews
Investors Hangout
15 Sep 14 10:15:47
jim50: $JCP High Date=Sept-15-2014 Open=11.07 High=11.18 http://t.co/TbBdFRmsiY
Investors Hangout
15 Sep 14 10:15:40
jim50: $JCP High Date=Sept-15-2014 Open=11.07 High=11.18 http://t.co/tqXA3EMxIW
15 Sep 14 09:47:21
$JCP High Date=Sept-15-2014 Open=11.07 High=11.18 Low=10.9 Close=10.94 Volume=4260306 http://t.co/OM5yJ3InCN
15 Sep 14 09:41:58
$MYEC Parabolic SAR $MYEC Most recent stock chart and technical analysis. $MNKD $CAR $SH $XOM $JCP $CTIX http: http://t.co/v1QHzmhMjT
15 Sep 14 09:37:27
$CENX Century Aluminum Company (CENX) 26.01 -1.59 (-5.76%) $JCP $FCX $UNG http://t.co/Wc9RWLwYjW
Samuel Brown
15 Sep 14 09:31:27
$JCP Time Is Ripe To Buy J.C. Penney Shares (JCP) http://t.co/J8dUGlnJCr
15 Sep 14 09:11:41
We just released a major mid-day alert on MLHC! Check it out: http://t.co/zPRXsXfAGO $JCP $AQUM $WSGI
15 Sep 14 08:56:14
RT Options Scanner shows J.C. Penney $JCP October 12 call option implied volatility increased 8% to 52
Investors Hangout
15 Sep 14 08:44:08
DennyT: MBLY Balance Sheet $MBLY $EKSO $JCP $TSLA $RWLK http://t.co/n2IrTY3VQX
Investors Hangout
15 Sep 14 08:44:08
DennyT: MBLY Balance Sheet $MBLY $EKSO $JCP $TSLA $RWLK http://t.co/6JgDVue6le
Mark S Boone
15 Sep 14 08:31:03
$JCP Looks like another failure to launch. Think we may play "Gimme, Give me" until analysts day next month. Need some juju.
LCD News
15 Sep 14 08:28:46
Recent new #highyield deals maintain gains on entering trading; retail under pressure http://t.co/p9rxrpHKWd $HYG $JNK $GYMB $GRA $JCP $RSH
15 Sep 14 08:13:36
MBLY Balance Sheet $MBLY $EKSO $JCP $TSLA $RWLK Buy or Sell Opinion,Candlesticks,High,Recent News,Showing on m http://t.co/OYg9u9ktYp
Investors Hangout
15 Sep 14 07:49:45
danrocks: $TNA Hitting Buzz $VZ $WFM $GS $JCP $UPRO http://t.co/aNJYPncros
Investors Hangout
15 Sep 14 07:49:40
danrocks: $TNA Hitting Buzz $VZ $WFM $GS $JCP $UPRO http://t.co/hGp3OyDdOQ
Extreme Stocks
15 Sep 14 07:41:25
danrocks: $TNA Hitting Buzz $VZ $WFM $GS $JCP $UPRO http://t.co/eHi4CNiInY
15 Sep 14 07:36:49
http://t.co/Vv1sYDyeQn chartguy89: Stock Charts: VLO Stock Chart $VLO $TVIX $NUGT $JCP http://t.co/HezzfkzYJm
Investors Hangout
15 Sep 14 07:33:18
leahanne: $JCP J.C. Penney Company Inc (JCP) 10.97 -0.09 http://t.co/5Q0O3OoEYl
  +Follow October 4, 2013 9:00AM



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