Stocks for the Long Run: J.C. Penney vs. the S&P 500

Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index like the S&P 500. That way, "you'll be buying into a wonderful industry, which in effect is all of American industry," he says.

But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how individual stocks have performed against the broad S&P 500.

Step on up, J.C. Penney (NYSE: JCP  ) .

J.C. Penney shares have underperformed the S&P 500 over the past quarter-century. By quite a bit, too:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 4.8% a year, compared with 9.7% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1987 would be worth $19,200 today, and. In J.C. Penney, it'd be worth $4,400.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up essentially all of J.C. Penney's total returns (the company doesn't currently pay a dividend). For the S&P, dividends account for 39% of total returns.

Now have a look at how J.C. Penney earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Deep underperformance here, too. Since 1995, J.C. Penney's earnings per share have declined, compared with 6% a year growth for the broader index.

What's that meant for valuations? J.C. Penney has traded for an average of 17 times earnings since 1987 -- below the 24 times earnings for the broader S&P 500.

Through it all, shares have been disappointments over the past quarter-century.

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks J.C. Penney with a one-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add J.C. Penney to My Watchlist.

The story of J.C. Penney is long and full of colorful history. Incorporated in 1913, the company has suffered alongside the nation through many recessions over the last hundred years. Now the company faces unprecedented challenges and struggles to regain profitability. Investors have to wonder if this company's century-long story is about to come to an end. In order to help you answer that question, we've compiled a premium research report with everything you should know about J.C. Penney. Simply click here to get started.


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