Is George Soros Lighting His Money on Fire?

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Finding value in J.C. Penney (NYSE: JCP  ) is like looking for the Northwest Passage -- it probably doesn't exist, and even if it does, it's probably not worth it. The billionaire and philanthropist George Soros is the most recent man to try to turn J.C. Penney around. If you wanted to wish him luck, now is the time, before he disappears into the frozen wastes of the Canadian countryside forever.

The problem is that these men don't seem to see what J.C. Penney has become. Soros just bought a 7.9% stake in the failing retailer, with the hope that it can be more than it has been for years. I think he's probably wrong, but here's a look at the pros and cons of J.C. Penney, in its current state.

The view from the ground
Looking back over the last year, the best thing that you can say about J.C. Penney right now is that Ron Johnson isn't around anymore. During his tenure as CEO, the company tried desperately to be something that it wasn't. It tried to be a place where you didn't use coupons and where you didn't buy back-to-school jeans off the rack -- you bought them from a "denim bar."

Here and there, little bits of these plans stuck, and made a bit of money. But the larger rebranding failed miserably, and shoppers fled the stores in disgust. Now that Johnson is gone and former CEO Mike Ullman is back in charge, the company should move back to being the kind of place that it always was.

The other benefit of J.C. Penney is that Soros' involvement may make it easier for the company to raise money. J.C. Penney hired Blackstone Group to try to help it raise some much-needed cash, and having Soros as a big stakeholder might make some funds more likely to open their purses. That would be a big deal for the company, which burned through $600 million in cash last year.

Luckily -- another point in the "pro" column -- J.C. Penney has some credit to its name, so it shouldn't be hurting too badly, even if the cash situation gets dire. Finally, and perhaps the best reason to consider the company, J.C. Penney has a lot of real estate -- like, "so much it could spin out a REIT and still have some left over" a lot.

Up in flames?
In conclusion, any meaningful investment in J.C. Penney has to revolve around the idea that you don't think the company can survive as a retailer. Soros may think that the company is doomed, that the cash it can unlock by selling its real estate is worth more than the cost of getting in -- and that might be a good investment.

But there are a lot of ifs. J.C. Penney is still burning through cash, and it needs to know when to say when -- something it hasn't done well in the past -- if it's going to be profitable even in liquidation. It needs to fail, because if it just limps along, then there's no impetus to unlock that property-based cash. I don't see this turning into a good idea anytime soon. But I guess I'm not George Soros.

J.C. Penney's stock cratered under Ron Johnson's leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about JCP's turnaround -- or lack thereof. Simply click here now for instant access.

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