There may be some moments of tremendous gains, but buying stocks like J.C. Penney (NYSE:JCP) are simply not worth it. Now JCP stock, Chesapeake Energy (NYSE:CHK), Luckin Coffee (NASDAQ:LK), and others all face a similar fate: Being de-listed from their respective exchanges.
Friends, I have been consistent and adamant about avoiding names like J.C. Penney. The risk is simply not worth the headache that they present.
Healthy companies do not engage in massive reverse splits — like CHK — or find themselves continually facing potential de-listing for failing to meet exchange requirements, like JCP stock. They do not fall 80% in a single session due to accounting fraud, like Luckin.
There is a reason CHK, JCP, and others have been in multi-year downtrends. Debt bloats the balance sheet like an aggressive cancer, while the bottom line remains pressured and often free cash flow is negative. Buying these names is not done with an investment mindset, it is done with speculation in mind.
What to Look for Instead of JCP Stock
Look, I get it. The temptation here is hard to ignore. If you can buy a few thousand shares of some penny stock, isn’t it possible that it doubles, triples, or goes on some otherwise enormous rally?
Yes! It’s completely possible. We saw it with Chesapeake in June. We also saw it with Hertz (NYSE:HTZ). Despite Hertz’s dead-weight balance sheet and obliterated stock price, shares ultimately climbed 600% in three trading sessions. Of course, that was before reversing lower and giving up all of those gains.
Many investors see that 600% rally on an 80 cent stock and think, “man, $800 could have easily gone to $4,000 in just a few days!”
If you specialize in penny stocks, I’m not going to tell you to stop trading them. After all, that’s the beauty of the stock market. There are a thousand different ways to make your mark. But I like to stick to one old saying, which is that you get what you pay for.
There’s a reason these companies are scraping the bottom of the stock market barrel. Instead, I prefer to go with companies that have strong fundamentals and a solid dividend, or a company with strong growth in a secular growth industry.
Not many investors have gone broke chasing the strongest fundamentals with a diversified risk plan. Many have gone broke chasing penny stocks with too large of a position. Do what fits your personal plan, but if you’re going to speculate, do so responsibly.
Those huge multi-baggers can be achieved with a more patient approach, by holding some of the best companies we can find. Over a long enough stretch, these results tend to crush penny-stock pops, anyway.
JCP Stock vs. Strong Retail
In the case of CHK stock, it’s a reiteration that investors should avoid poorly financed energy companies. LK stock is a lesson to avoid enterprises with accounting irregularities. In the case of JCP stock, it’s a lesson in avoiding retailers that are struggling to adapt to today’s new world.
Look at department store stocks vs. companies that continue to do well in the current climate. Foot Locker (NYSE:FL), Macy’s (NYSE:M), and JCP stock were struggling before the novel coronavirus came along. Now they are most certainly struggling.
But look at companies like Costco Wholesale (NASDAQ:COST), Walmart (NYSE:WMT) and Target (NYSE:TGT). Or brands like Nike (NYSE:NKE) and Lululemon Athletica (NASDAQ:LULU).
In some cases, these essential retailers were able to continue conducting business even with Covid-19 taking place. In fact, the coronavirus actually accelerated sales for many of these companies. However, for all the names listed above, a successful (and multi-year) pivot to online sales helped stem some of the blow from the current pandemic.
Covid-19 sent consumers into a frenzy for essential supplies, but it also sent those with disposable income online. Retailers that can and are adapting are the ones that are thriving, and the ones that aren’t — like JCP stock — are the ones struggling to survive.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
