JCPenney

In 1902 a young man of 26 years old by the name of James "Cash" Penney opened a store called The Golden Rule in Wyoming. James Penney was given the nickname Cash because of his moral oposition to credit. Selling merchandise for cash only, Penney grew the retail chain throughout the Rockie Mountain states and later changed the name to JCPenneys. Today there are more than 1,000 stores throughout the world, but they did not start accepting credit as payment until the late 1970's.

In fact the idea of borrowing money short term (credit cards), is only a recent idea. The first credit card issued in the US was in 1951 by Diners Club to only 200 customers. They were accepted at 27 restaurants in New York. Credit cards really didn't catch on until 1970 when standards for the magnetic strip were developed. Back then credit companies didn't tolerate a late payment from a customer. It wasn't until years later that credit card companies realized they could make even more money on interest.

As aware consumers, we need to realize how much things have changed just in the past century. Did you know that in 1929 only 2% of houses had a mortgage on them, while in 1962 only 2% did NOT have a mortgage?

Until this morning I believed that much of the retail industry was overbought, and that any capital gains accumulated during the industry’s incredible run should be taken off the market into other areas. However, after seeing that the unemployment level of 4.4% is the lowest amount in over five years, I foresee a tremendous opportunity for a department retailer such as JCPenney (JCP) to go even higher in terms of share price, even as it has recently reached record highs.

Such analysis can be made for a myriad of reasons. Many investors have seemed to realize that certain components of the retail industry have outperformed other areas. While through the early 2000s, many discount retailers earned better fundamentals in terms of revenue and earnings, from analyst understandings, it seems that the market concentration of valued stocks has shifted from such discount stores of Wal-Mart and Costco to more departmental companies such as JC Penney. With this Plano, Texas located company to produce its quarterly results next Thursday , there is a strong possibility, if the other stocks are any indication that shares of JC Penney will be favorable to the shareholder and sustain such optimism for at least the next six months.

Referring back to the introduction, I stated the unemployment landmark for a number of reasons. As I originally believed that the economy was slowing down in a more dramatic fashion than appears to be, such analysis would contribute to the assessment of a poor share price in the future for retailers such as JCPenney. However, as more people are obtaining jobs, and as more wages continue to rise coupled with a terrible savings rate for domestic consumers, there is a good possibility that a company such as JCPenney can benefit immensely from such readings. As more consumers have more discretionary income to spend, rather than going to discount stores such as Wal-Mart to purchase normal goods, these same consumers, especially during the holiday season, will tend to switch their purchases to more luxury goods found in departmental stores. As that happens, the fundamentals for JCPenney should sky rocket as both the fact that Americans have more money and the fact that the time has come for holiday shopping, for the next two quarters, at very least, JCPenney should support the necessary numbers to boost the share price of this stock to even more record highs.

As I say such a sentiment, there is also a hint of cautiousness involved too. As the Federal Reserve has indicated by its previous three meetings that they are more than likely completed raising rates, and the next move would be to decrease rates, such would not be too favorable for companies like JCPenney. In order for rates to be decreased there would have to be a significant pullback in the economy where the unemployment rate surpasses about 5.5-6%, and economic growth slows down to less than 1%. If such is the case, then consumers will be more hesitant to purchase products from departmental stores such as JCPenney and move their purchases to discount retailers, as what happened in the early 2000s. However, because of the lag indication, and also because there seems to still be a strong sense of economic growth illustrated by the revised unemployment rations, JCPenney, at least for the next six months should provide investors will a good opportunity to continue or even begin to earn more capital gains.

Therefore, with pretty solid fundamentals, especially in recent years and quarters, J C Penney should not disappoint investors in the next couple of earning sessions. Provided, that this company has beat the bottom line figure every time in the last four quarters, I am expecting an even bigger positive surprise margin when the results pour in next week. Again, while JCPenney may not be completely suitable for a long term investor (even though it had only moved sideways during the last recession), in the short run there is pretty sure bet that the share price will rise dramatically.
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