J.C. Penney Stock Is Only Awesome if You Love Burning Money

If you don’t, JCP stock is not for you

This is an article I really shouldn’t be writing. However, because I understand the temptations that attract the human mind, I want to throw my two cents in. Despite the allure of the pennies-on-the-dollar price of once-iconic department store J.C. Penney (OTCMKTS:JCPNQ), I urge you to stay away. It declared bankruptcy for a reason. Therefore, JCP stock — I’ll refer to it as such for clarity’s sake — is nothing but trouble.

Referencing its old, recognizable ticker is about the only credit I’ll give the beleaguered organization. With many other companies, I’m more than willing to extend the benefit of the doubt.

After all, the novel coronavirus and the ensuing global response is a black swan event, one that probably won’t happen again for at least several years. Thus, some solid businesses just got a bad break.

But that’s not the case at all with JCP stock. Here, the underlying company faced severe risks before the pandemic struck. In reality, J.C. Penney would have tanked eventually. When you look at the broader shopping mall sector, it’s painfully obvious that consumer interest just doesn’t exist. Essentially, it’s a terrible house in one of the worst neighborhoods in America.

So, why are some speculators interested in JCP stock, enough so that this message needs to be written? Frankly, it comes down to the glorification of a quick buck. In the midweek session, shares popped up double digits, opening the possibility of easy money.

To be fair, this motivation isn’t without some justification. Another retailer that filed for bankruptcy, Pier 1 Imports (OTCMKTS:PIRRQ), saw its shares rise dramatically between mid-March and early May.

But the takeaway is that this move failed badly.

For JCP Stock, There’s Nowhere to Go but Down

Nevertheless, despite my urging, I know that there are many investors out there that are still considering making a quick profit off an ugly name like J.C. Penney. Of course, we’ve seen some stocks do crazy things for no reason. Thus, the flawed logic goes, why should this time be any different?

Perhaps the biggest correlation here is Sears (OTCMKTS:SHLDQ). Like J.C. Penney, Sears was an American icon now rendered a relic. But in its heyday, it was the retailer to meet your shopping needs. But as this little thing called the internet came about, the company failed to recognize the coming paradigm shift.

Instead, it relied largely on its soon-to-be antiquated business model while then upstarts like Amazon (NASDAQ:AMZN) started building a foundation and a following. From there, Sears was on borrowed time.

When the outdated and irrelevant retailer filed for bankruptcy in October 2018, shares soon found themselves plummeting. But after hitting bottom, Sears stock enjoyed a mercurial rise into early February of the following year. Unfortunately, it’s been a money pit ever since.

I see the exact scenario playing out for JCP stock. Yes, it’s very possible that a rush of dumb speculators can drive up the price. But knowing when to abandon ship is the difficult part.

Even if you’re the most disciplined investor, there’s no guarantee that JCP stock will move higher like Sears or Pier 1. I said it’s possible, not probable. Additionally, there’s an argument to be made that Sears’ appliance business is relevant. With J.C. Penney, too many competitors exist in the space.

Honestly, whatever you can find at JCP, you can find anywhere else. Without any hope of differentiation, shares will quickly implode even if a rally materializes.

This Is the Ultimate Money Drain

If you’re still thinking about getting rich off JCP stock, let me share this final thought. Buying this junk equity is equivalent to buying an old, high-mileage exotic car. Sure, that Italian beauty may still look stunning after all these years.

But for most people, you’re not rich enough to buy something so cheap. Let me explain.

In these situations, the only thing that’s discounted is the headline price. But that doesn’t take into account inevitable forward costs, such as routine maintenance. In an exotic, these mundane services could set you back several thousands. Then, factor in probable costs — like an engine-out service — and you’re on your way to bankruptcy yourself.

If you’ve got the means to burn money and not care, then knock yourself out. But if you’re not in that position, stay away from JCP. Chances are, you won’t regret it.

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.