My prediction that next year J.C. Penney will be the hottest retail stock got a ton of pushback. None was as well-reasoned as Brian McGough, Managing Director of the Retail Sector at Hedgeye Risk Management.
My prediction, outlined here, is that this is a bet on the track record of new CEO Ron Johnson, who comes from Apple . He’ll be laying out his strategy at an investor’s event later this year.
1) JCP will ultimately be the best stock in the market, but only after it’s the worst stock in the market.
2) Johnson is probably the right guy, but he has to make up for 7 years of mismanagement and underinvestment.
3) It takes more than talent to fix that. It takes capital—a lot of it.
4) Investors are not prepared for the sticker shock of what he’s going to hit them with at investor meeting in early 2012.
5) Only way to win is to get the content to be incredible. He has a long way to go.
6) Kohl’s won’t take this lying down.
7) So overall, I don’t doubt that Johnson will get the job done. I just think that there’s a severe mismatch between his duration and Wall Street’s.
8) From an accounting perspective, this company should LOSE money next year. Is this the kind of market where people will simply look through a CASH loss?
Hard to argue with almost any of those. But I also know investors love to buy into a good “story,” fundamentals be damned. If we've learned anything about the market, for better or worse—it’s that. And at least this company has somebody with a track record to bet on.
Questions? Comments? Write to HerbOnTheStreet@cnbc.com