Cramer: JC Penney vs. Macy's throwdown

J.C. Penney has made a valiant turnaround effort, but is the stock worth buying at its $7 share price?

Jim Cramer knows that J.C. Penney is really are trying, but would a $61 Macy's make more sense?

In order to gain a clear understanding, let's take a look at the retail climate and see if it is really worth it.

Investors find J.C. Penney attractive, simply because it is $7 and they think they cannot lose at that price. CEO Mike Ullman is still trying to clean up the mess of previous management by rebuilding customer trust through the introduction of inexpensive private label brands and by focusing on building morale.

"Put simply, Ullman and company did a remarkable job on all fronts," said the "Mad Money" host.




A shopper walking with a Macy's shopping bag in New York.
Scott Mlyn | CNBC
A shopper walking with a Macy's shopping bag in New York.

Ullman was also faced with rebuilding the balance sheet, sometimes at the expense of shareholders. This was needed to ensure it raised the needed $900 million to have inventory ready for the holidays.

"Just ask Sears, who is busy selling off anything that moves, and then some," added Cramer. Yikes.

While J.C. Penney has taken steps in the right direction and should benefit from the improved customer sentiment, lower unemployment, lower gasoline prices and healthy financial markets, it just cannot compete with Macy's and a few of the other big retail dogs. The competition didn't sit still during this time either, they improved too.

Why? Because of Amazon. Technology has now become an essential budget item that cannot be overlooked. Macy's has the advantage on that. People like to buy online and pick up and buy more stuff when they get to the store.

That is the biggest risk that J.C. Penney is facing.

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"That is why I think that Penney at $7 is no bargain, and Macy's at $61 makes sense," said Cramer.

Without a dedicated technology strategy, Penney just cannot compete in the same playing field.

Cramer thinks investors should stop waiting on J.C. Penney to make some sort of big transformation. They are better served waiting for Macy's to come down a bit, and then riding that stock all the way into the holiday glory days.

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