In for a Penney … views on retail investment

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Martha Stewart Living Omnimedia

J.C. Penney (NYSE: JCP; Price: $35.99) announced in January 2012 that it would slash prices on all merchandise by 40 percent permanently. As of press time, J.C. Penney’s strategy helped to drive its stock price up by 4 percent, but don’t rush to add this stock to your investment portfolio.

A lawsuit that was filed by retailer Macy’s to prevent Martha Stewart Living Omnimedia from selling its wares at J.C. Penney while Stewart still is under contract with Macy’s could affect J.C. Penney’s revenue and cause its stock price to fall, says Mauricio Cortes of Morgan Stanley Smith Barney. Further, ratings agency Fitch in February 2012 dropped the retail company’s credit rating to junk status, which means that it’s an increased risk to investors. But Cortes believes that J.C. Penney’s strategy of reducing prices to drive sales could validate owning its stock in the long term. 

William Hammer Jr. of Vanderbilt Partners says retail business is difficult to predict. He suggests that investors would be better off to buy broad stock-market index funds instead of trying to pick retail companies.