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3 Stocks Getting Back on Their Feet

HPQ, BBY and JCP are rallying, but for just how long?

By Marc Bastow, InvestorPlace Assistant Editor

Everybody loves a comeback story, and that goes for Wall Street.

Among some of corporate world’s biggest surprise “second acts” in the past few months are Hewlett-Packard (NYSE:HPQ), Best Buy (NYSE:BBY) and JCPenney (NYSE:JCP). All were struggling just a year ago for various reasons, but all three have staged comebacks in 2013 to cut into last year’s big losses.

First, we’ll look at a snapshot of these three stocks from the past year in the table below, then discuss where each are today and what lies ahead:

Best Buy -32% +44% $17.41 $11.20
Hewlett-Packard -35% +31% $19.04 $11.35
JCPenney -46% +15% $23.10 $15.69


Broadly speaking, Hewlett-Packard has been in the news and in the crapper now for years. The company’s corner-office fiascos are front page news (only since Meg Whitman took the helm back in 2011 has any sense of continuity been established). Revenue has suffered. Earnings have collapsed. Corporate restructuring has taken a toll on company morale. All the while, HP is struggling to find a niche — because it’s never going to lead — in a mobile world in which it just doesn’t have a product presence.

The stock has reflected all of this, plummeting 60% in the past five years.

However, Whitman has vowed to make HPQ relevant again with new product introductions, streamlined management and a massive expense-cutting program that will mean the axe for up to 29,000 employees by the end of fiscal 2014. It’s likely that these headlines are what have driven HPQ up 60% since bottoming in November and 35% year-to-date, as earnings have been ugly.

While revenues and earnings declined, profits at least beat expectations — although perhaps the estimates were target much too low — and investors rewarded the result. The bad news was that any kind of significant turnaround will still take time. Says Whitman:

“While there’s still a lot of work to do to generate the kind of growth we want to see, our turnaround is starting to gain traction as a result of the actions we took in 2012 to lay the foundation for HP’s future.”

At the end of the day, Hewlett-Packard sits on a mountain ($13 billion) of cash, and it managed to generate $2.6 billion in cash flow for the quarter, so it has the resources to try to hit a technological home run, or it can at least buy itself plenty of time before it fades into obscurity.

I don’t expect growth, but HPQ does at least continue to pump out dividends, to the tune of a current 2.7% yield. Whitman and that mountain of cash should keep that dividend paid and growing.

If nothing else, HPQ can pay you a bit while sitting on it as a long-shot turnaround hope.

Best Buy

Another flameout that has garnered plenty of headlines in the past few months is brick-and-mortar electronics retailer Best Buy. It has been squeezed on multiple fronts, be it on the ground via big-box competitors Walmart (NYSE:WMT) and Target (NYSE:TGT), or via Amazon (NASDAQ:AMZN) and its “showrooming” consumers.

Enter a white knight in the form of company founder Richard Schultze, who wanted to save the company by taking it private … even though he was shown the door by his board. He originally dangled an absurd price to fool entice investors, though eventually the potential price was lowered to more reasonable levels. In the meantime, BBY hired Hubert Joly to helm the ship, and among other ideas, Best Buy announced a “price-matching guarantee” pricing strategy to keep everyone in the stores.

At least a couple analysts — from Barclays and Stifel Nicolaus — have become believers and recently upgraded the stock. Still, the writing is already on the wall. A more accelerated economic recovery is the only thing I think could really push BBY in the right direction. Otherwise, the trend isn’t in BBY’s favor — people can go elsewhere for their electronics, and for cheaper, and BBY just can’t sustain the crush to margins it will suffer by trying to play chicken with Amazon and Walmart.

I’d hang in here only if you think Schultze can pull off his Hail Mary.


CEO Ron Johnson, who most famously cut his teeth at Apple, was brought into JCPenney not to tweak the company, but to save it in any way possible — even if it meant starting from scratch.

To say that Johnson got off to a slow start would be an understatement. Longtime customers looking for the everyday discounted price model were put off by his new “fair and square” pricing schemes, and were never quite sure if they should duck from falling plaster or walk out when they had to pay retail. Plus, remaking locations into stores-within-a-store models have been (and continue to be) expensive and time-consuming.

However, the turnaround appears to be gaining at least some traction, and customers are coming back. Sure, Johnson had to adjust a little bit on the fly and offer back up some of those discounts, but the in-store boutiques are working well, and consumers have noticed.

Where does JCP go from here?

Specialty retail’s still a crowded field: Macy’s (NYSE:M), Kohl’s (NYSE:KSS) and Sears (NASDAQ:SHLD) are all among the group fighting for market share, so right direction or not, JCP still has to overcome hordes of competitors, most of whom haven’t spent the past year-plus trying to get back to square one.

JCP has lost money for five straight quarters, and it needs cash. The company’s bankers just gave them a nice break by renewing a $1.75 billion credit facility (which is unused to this point). Also, Pershing Square‘s Bill Ackman, an 18% shareholder, is bound to keep holding Johnson’s feet to the fire for signs of success.

There is no dividend here to help you through the rough spots, but right now, there’s more reasons to believe in JCPenney than there are to doubt it. JCP’s no sure thing, but it’s worth a longer look.

Marc Bastow is an Assistant Editor at As of this writing he does not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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