Earlier in May, retail giant JCPenney (OTCMKTS:JCPNQ) filed for bankruptcy. Therefore it is not listed at the New York Stock Exchange any more, but rather JCP stock now trades over-the-counter. Long-term shareholders know the company struggled with a broad range of managerial and financial issues over several years. And the novel coronavirus pandemic became the final blow to end this century-old company.
Bankruptcy, in effect, means a total wipeout for shareholders. Yet there seems to be daily trading interest in JCP stock as well as another bankrupt name, i.e., Hertz (NYSE:HTZ). And this rather unusual trading activity understandably baffles veteran investors like the CNBC host Jim Cramer.
Today, I’ll discuss if long-term shareholders should consider buying the shares. JCP stock is likely to lose all of its value in the coming weeks. Therefore, it does not belong in an investment portfolio.
Could JCPenney be Acquired?
The internet seems awash with regular headlines on the future of JCPenney and JCP stock. Part of the interest may be due to speculation that another group, specifically Amazon (NASDAQ:AMZN), could buy JCPenney. It may indeed make sense for Amazon to show a genuine interest in the retailer.
Regular InvestorPlace readers would remember that Amazon’s revenue comes from six main segments:
- Online stores (about 50% of revenue)
- Physical stores (about 6%)
- Retail third-party sellers (20%)
- Amazon Web Services (AWS) (12%)
- Subscriptions such as Amazon Prime (7%)
- Other, such as credit card agreements and advertising (5%)
And JCPenney could well fit within a number of these segments. In recent quarters, Amazon has been expanding its e-commerce segment and physical retail operations as well as logistics. For example, Seattle has recently become home to Amazon’s first full-size, cashierless grocery store, i.e., Amazon Go Grocery. In June 2017, the group had also acquired Whole Foods for $14 billion.
According to eMarketer, between February and April 2020, Amazon Prime members in the U.S. have significantly increased their purchases in most product categories.
JCPenney has 846 stores, 387 of which it owns. Therefore a purchase by Amazon would mean owning prime physical locations, which would also expand Amazon logistics. Jeff Bezos may also regard JCPenney as a potential help in developing Amazon’s apparel and other retail business. It may also allow the e-commerce giant to expand its tech offerings in a retail setting. For example, it would bring in more data on retail shoppers, including their spending habits as well as credit card purchases.
In short, such an acquisition would make sense and could happen. And an Amazon-branded brick-and-mortar experience may look a lot more different than what customers have experienced in the past. But does such an omnichannel experience for Amazon patrons mean that JCP stock would benefit and move higher?
JCP Stock Is Unlikely to Recover
As a department store, JCPenney has been struggling for a long time. It has not turned in any profits for about a decade. And its debt levels have been among the highest within the retail sector. Thus, it is unlikely that JCPenney, the retail business, will soon come back under its own name. And that somber fact has been reflected in the JCP share price.
In March 2016, JCP stock was shy of $12. Since then, it has been in decline. It started 2020 at around $1. On May 19, it went below 10 cents. By June 8, it spiked up to 68 cents, highlighting the speculative thinking in the market. Now it is hovering around 31 cents.
Could JCP stock recover from its current state move out of penny-stock territory? Like many other fellow contributors at InvestorPlace, I do not think so.
For example, in a recent article, Thomas Neil sums up, “Chapter 11 bankruptcy usually means that the common stock winds up becoming worthless. Ownership is handed over to the company’s creditors, and the common stock is cancelled. Sure, sometimes a bankruptcy ends up leaving shareholders with some equity. But even then, that’s after extreme shareholder dilution, as creditors receive newly-issued shares to settle outstanding debts.”
Even if Amazon, or another group, were to buy JCPenney, it does not necessarily have to acquire the stock as well as the debt that comes with it. Bezos may simply be keen to structure a deal that would buy only parts of what used be the retail giant.
At this point, there are still many question marks and quite a lot could happen in the coming months. That uncertainty makes JCP stock quite a risky proposition for long-term investors.
The Bottom Line on JCP Stock
A new wave of day traders seems to enjoy riding the thrill of volatility in newly bankrupt names such as JCP stock. Are you one of those traders who may stand ready to lose all the investment in such a game? If not, then you’d be better off keeping away from JCPenney shares or any other bankrupt name. It may be more fun to spend that money shopping in a liquidation sale at a neighborhood JCPenney store.
Finally, if you are interested in investing in retailers as well as e-commerce companies, you may want to research several exchange-traded funds (ETFs). They’d include the Invesco Dynamic Retail ETF (NYSEARCA:PMR), the VanEck Vectors Retail ETF (NYSEAMERICAN:RTH), the Amplify Online Retail ETF (NASDAQ:IBUY), or the Global X E-commerce ETF (NASDAQ:EBIZ).
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.