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JC Penney on a High that May Not Last


Retail is not home free.

I don't know where you'll be this weekend, but you'll find me on the soccer field. My oldest has a big tournament. Four games in all, and I can't wait. Details to follow on Monday. (Sorry folks, but this is my bragging venue.)

Asian stocks were up yet again overnight. The Hang Seng and the Nikkei were up 0.03% and 1.87%, respectively. European stocks were more of a mixed bag, however, early this morning. And here in the US, we're currently trading…

Here's what I'm seeing this fine Friday morning:

JC Penney (JCP):
Yesterday was a busy day for the old-school retailer.

Right off the bat it was out with its September same-store-sales numbers. They were off 1.4%, which was clearly better than the 3.5% drop off the Street had been expecting.

In a release, it also said that "management now expects to report third-quarter earnings of $0.03 to $0.10 per share compared to previous guidance for earnings to be in the range of a loss of $0.05 to earnings of $0.05 per share."

The other big news that caught investors' attention was a Liz Claiborne (LIZ) press release which stated among other things: "The company has entered into a long-term licensing agreement with JC Penney Company, Inc., under which JC Penney will become the exclusive department store destination for all Liz Claiborne and Claiborne branded merchandise in the United States and Puerto Rico."

Some thoughts:

1. Clearly it was a big day for JC Penney shareholders. And there are just so many nice positives right now: a better-than-expected comp result, a bump-up in the outlook, it's team-up with Liz (which has a great name), and the shares bouncing around their highs.

2. And while I don't want to fight the tape and apparent momentum the company and the stock seem to have, all that excitement is part of the problem. I believe some air may be squeezed out of this vast balloon in the near-term once all the high-fiving finally stops.

3. I'm also going to point out yet again that retail really isn't home free because of the still-cautious consumer, yet investors are treating it as if it's the best thing since sliced bread. Keep in mind that JC Penney trades at 24.8 times next year's estimate, which I feel is a country mile too high.

For my last take on JC Penney, click here.

KB Home (KBH):
The homebuilder had a nice up day yesterday on some high volume. Toll Brothers (TOL) got a nice goose and Pulte (PHM) was also up. In short, it was a great day for those that put up houses.

Some quick thoughts:

1. I understand that low rates are generating interest in houses. And I get that there's a feel that we've taken a step back from the vast abyss and that's why some are more willing to belly up to a big mortgage. But you heard it here: Rates aren't going to stay low folks. And that unemployment rate is looking pretty lofty and could climb before it falls. Not to mention the precarious level of the stocks right now and what might happen if the market drops and people start to see their account balances dwindle again.

2. My point: At the very least, it would be smart to use the bump up and bag some profits.
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No positions in stocks mentioned.

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