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Friday, 08/22/2003

Back to School Profits
By Nich Sheldon
JCP - J. C. Penney Co Inc

Company Description

J. C. Penney Corporation, Inc., the wholly-owned operating subsidiary of the Company, is one of America's largest department store, drugstore, catalog, and e-commerce retailers, employing approximately 230,000 associates. As of July 26, 2003, it operated 1,040 JCPenney department stores throughout the United States, Puerto Rico, and Mexico, and 56 Renner department stores in Brazil. Eckerd Corporation operated 2,710 drugstores throughout the Southeast, Sunbelt, and Northeast regions of the U.S. JCPenney Catalog, including e-commerce, is the nation's largest catalog merchant of general merchandise. J. C. Penney Corporation, Inc. is a contributor to JCPenney Afterschool Fund, a charitable organization committed to providing children with high quality after school programs to help them reach their full potential.

[Source: Company Press Release]

Reasons to Invest:

Ahh the first few weeks of school are underway and Mommies and Daddies across America are all being asked this question, "When can I go back to school shopping." You see, most kids know that there is one time a year (besides holidays) that they can hit their parents up for clothes, and this one time is usually right when school starts. Back to school means back to profits for J. C. Penney Company (NYSE:JCP).

This retail giant has seen seven out of the past ten trading sessions, end in positive territory before the closing bell. In our eyes this would mean that JCP is a little overextended (of course we say overextended in a short term sense). This stock is up more than two points over the past five trading days and we believe it is due to increased profits from back to school shopping.

What makes this stock look attractive to us is the fact that it is already undervalued and very cheap to purchase. For instance the minimum requirement to be enrolled in a DRIP through JCP is only $25 a month. Well in most cases, at least for over 75% of the stocks that we highlight here on, $25 would only buy one share or even a fraction of one share. Where as, you can nearly buy one and quarter shares of JCP with your minimum monthly payment of $25 (at its current level).

Another thing that makes JCP appealing is the fact that it has been trending higher over the past two weeks. Volume for JCP has been on the steady increase (over the past few sessions), the MACD is giving a bullish signal and long term resistance of 18 and change was broke yesterday (Thursday, August 21st, 2003). Moreover, JCP is trading over its 200 DMA for the first time since this past April. Soon enough, short term bull traders are going to seek profits and start selling off JCP, which will dip the stocks value down a little bit and provide a better entry point for those of you who are interested in JCP. We are hoping that old resistance of 18.8 will become support and send the stock higher.

One thing that must be mentioned is that JCP has been in a rut. The pessimistic side of me says, never ignore the technicals. JCP only has 15 brokers covering them and only 2 of those 15 are suggesting a "Strong Buy" rating, while the rest of them are suggesting to hold or sell (more on this below in the broker coverage section). Revenues for the retail giant fell 3% and net income applicable to common fell 32%. These are indicators that you just can't ignore. On the other hand, the Retail Index (RLX) has been trending higher since March and does not look like it is slowing down. If the RLX continues higher we can only assume that JCP will be along for the ride.

J. C. Penney said that its income and revenue loses were due to less catalog and comparable department store sales. In contrary to this, what can you expect in an economy that is reporting more and more jobless, pay cuts, and lay offs. If people are broke they feel less inclined to go shopping or to take their kids out to buy school clothes. Yet, the optimistic side of me looks at JCP's current level and says this is a bargain. This stock is too undervalued and with a respectable dividend yield of 2.48% it could not look any more attractive. The company also offers an annual dividend of $0.50 and I suspect that after the economy turns around, so shall J.C. Penney. Who knows, maybe over the next five years we can see JCP hit its 1998 (all-time) high of 78.75 (that is probably pushing it... BIG GRIN).

I hope that I have allowed you to see both sides of the coin. I always try and be pessimistic before I am optimistic. If anything catches my eye, or if anything looks out of the ordinary or sounds to good to be true, I will generally turn my cheek and look for another DRIP. JCP is currently on a bullish trend, but lower incomes and sales are not a good sign. However at its current price level and with the retail index trending higher, I can see past lowered revenues and income. Like I said, it's to be expected with the type of economy that we are currently in. Besides, J.C. Penney has been around for a long time and I do not think they are going anywhere anytime soon. We are long term investors who are buying retirement plans for ourselves, or college funds for our children. This is why we look for stocks that are undervalued and for stocks that have a high potential for profits. Good luck!

Until Next Week,
Nich Sheldon

Broker Recommendations

Strong Buy         2
Buy                0
Hold               9
Sell               3
Strong Sell        1

Brokers Covering  15

DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = Yes
Accept Foreign Accounts: Yes
Temper Enrollment:  Yes

Min/Max Investment = $25 to $10,000/month

Reinvestment Fees - 
Dividend investment fees: None
Cash investment fees: $1.50+6cents/share
Auto reinvestment fees: None

Transfer Agent:

Corporate Headquarters:
6501 Legacy Drive
Plano, TX 75024 
Phone: (972) 431-1000
Fax: (972) 431-1362


Copyright 2003

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