by Lawrence Meyers | March 14, 2013 1:01 pm
Sometimes it isn’t just business challenges that affect a stock’s price. Public perception of a company can do as much, if not more, damage than whatever is transpiring with the business.
This is particularly true in the face of weak corporate communications strategy, which is one reason why JCPenney (NYSE:JCP) stock is suffering as much as it is. That’s not to say the company’s turnaround challenges aren’t baked into the stock price. They are, without question. However, the company’s communications have been abysmal — and consequently, market perception has suffered.
In short, JCPenney needs to communicate what their major change means and what it looks like. Here are some of their biggest challenges (and how they could be tackled):
Thus, there are two components to the JCPenney story: the communications angle and the actual turnaround. To a certain extent, the two are linked — communication follows internal action. And right now, internal action appears confused.
If you believe communications will improve, then I think you should go long the stock, or buy calls to mitigate potential risk. A robust narrative will offer faith that the company is on top of its seismic shift.
Doing things like having closed-door investment presentations is a terrible idea. If this keeps up, then management isn’t ever going to understand the importance of communications strategy. If they can’t grasp that concept, the turnaround is much more likely to fail, and you go short, or buy puts.
In the meantime, there are other ways to play the stock. There are short-term gains to be made by selling naked puts. This short-term strategy negates much of any communications shortfall and limits exposure to bad news coming from the company. Selling the April 15 puts for 92 cents, for example, yields a sizable 6% return in just five weeks, or about 62% annualized.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.
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