George Soros just announced a 8% passive stake in JCP, and the stock is trading up about 7%. We discussed a potential long position in JCP today, and here were the thoughts we wrote up below, with plans to post tomorrow.
Wish Our Timing Was Better. Shucks.
When was the last time you heard something positive about JCP? We can’t remember either. Even Ron Johnson was not enough to get the stock to rally, as traders were initially excited on hearing the news, but then supremely disappointed when Mike Ullman was announced as the replacement.
However, the price action on the day following that announcement was notable. It was the largest volume day in JCP history, and JCP stock briefly breached its 2009 low of 13.71 before bouncing back since then:
In hindsight, the large volume day is starting to look like potential capitulation. Perhaps more interesting is that short interest in JCP has not come down much in the past 6 months, despite the stock’s almost 50% fall:
Short interest today still stands at almost 40% of float, which is very high, but especially for a stock that has declined so much. That means that much of the buying has come from new buyers who are interested in the name for some reason, no matter all the bad news.
Cash flow concerns are frequently cited at the top of the list of problems for the retailer. But I was surprised when I looked at the 5 year CDS price, which measures how nervous credit traders are about the potential for default on the company’s bonds. Despite the stock’s weakness, the CDS price has hardly since July:
The red line is simply to illustrate that the CDS has hardly moved the entire time, despite the stock’s decline. In that sense, credit traders are not as nervous about “cash flow” as stock traders.