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Why Pacific Ethanol, E-Commerce China Dangdang, and J.C. Penney Are Today's 3 Best Stocks

By Sean Williams – Feb 27, 2014 at 5:15PM

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The S&P 500 rallies to a new all-time high on mixed economic data while stellar earnings reports send Pacific Ethanol, E-Commerce China Dangdang, and J.C. Penney soaring.

Surprise, surprise! No housing data on the docket and the broad-based S&P 500 (^GSPC -0.03%) moves decisively higher yet again -- I think I'm beginning to notice a pattern.

Today's rise comes on the heels of generally positive corporate earnings data, as well as mixed economic data.

In the negative column, weekly initial jobless claims rose by 14,000 last week to a seasonally adjusted 348,000. Although this figure is still trending lower in recent years, we're likely going to need it to dip closer to 300,000 on an adjusted basis if we have any hope of unemployment rates dipping below 6%.

On the flip side, the 1% decline in January's durable goods orders including the transportation sector was slightly less than the 1.5% drop that economists had predicted, and much better than the 5.3% decline reported in December. In addition, core durable goods orders, excluding transportation, actually rose a seasonally adjusted 1.1% compared to expectations for a decline of 0.3%. This measure of heavy product sales growth is a good sign for the economy and a stark reversal of the worries we witnessed in the prior month.

By the end of the day, the S&P 500 had advanced by 9.13 points (0.49%) to close at 1,854.29, an all-time closing high. But if you thought these gains were impressive, you haven't seen the gains posted by today's three best stocks.

Topping the charts today is ethanol producer Pacific Ethanol (ALTO -1.09%) which gained a whopping 65.5% after announcing its fourth-quarter results after the closing bell last night, as well as declaring its intention to restart its Madera, Calif., plant. For the quarter, Pacific Ethanol reported a 9% increase in net sales to $215.3 million, which was due to increased gallons of ethanol sold, partially offset by weaker per-gallon pricing. The big difference was that Pacific Ethanol reported an adjusted earnings-per-share profit of $0.54 compared to a loss of $0.60 per share in the year-ago period. By comparison, Wall Street anticipated a $0.01 per share loss! Given its improved margins and the restart of the Madera plant, there's clear excitement from shareholders that Pacific Ethanol can deliver consistent profits moving forward. While I wouldn't deny Pacific Ethanol shareholders this move today, I'd still urge them to remain cautious as ethanol pricing is generally weak and there's only so much cost-cutting the company can undertake to reduce expenses.

China-based business-to-business provider E-Commerce China Dangdang (DANG) also exploded higher, to the tune of 31.5%, after it reported better than expected fourth-quarter earnings results. For the quarter, E-Commerce China Dangdang delivered a 22% increase in total revenue to $325.7 million. It gained approximately 3.1 million new customers during the quarter and ended the fiscal year with 8.9 million active customers. The company also saw a 13% increase in total orders during the quarter to 18.1 million. The big surprise was the $0.04-per-share quarterly profit, which reversed a year-ago loss. Comparatively speaking, the Street had been looking for just $317 million in revenue and a loss of $0.07 per share. Furthermore, Dangdang's first-quarter revenue forecast calls for revenue of approximately $283 million, a 30% increase from the year-ago quarter and well ahead of the current $268 million consensus. I rarely throw my support behind companies that are only mildly profitable, but the way in which Dangdang is gaining new customers could lend additional upside in its share price.

Finally, struggling department store retailer J.C. Penney (JCPN.Q) soared 25.3% after reporting fourth-quarter results that weren't nearly as bad as expected. J.C. Penney reported a decline in revenue of nearly 3% for the quarter, to $3.78 billion, as the company reported an improvement of 2% in its fourth-quarter same-store sales comparisons. More importantly, J.C. Penney's gross margin improved 460 basis points to 28.4% as it dramatically shrunk its loss to just $0.68 per share, from $1.95 per share in the year-ago period. In contrast, Wall Street had expected Penney s to report a much wider loss of $0.87 per share. Looking ahead, Penney anticipates first-quarter same-store sales growth of 3%-5% and fully expects to end the fiscal year with more than $2 billion in liquidity. While this is a start, I'd remind investors that Penney's is on step three of a 100-step turnaround process. Losses will be ongoing for some time and management has yet to outline a plan to actually grow the brand. I'm sticking to the sidelines when it comes to Penney's.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any companies mentioned in this article. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,026.12 (-0.03%) $-1.14
E-Commerce China Dangdang Inc. Stock Quote
E-Commerce China Dangdang Inc.
J.C. Penney Stock Quote
J.C. Penney
Alto Ingredients, Inc. Stock Quote
Alto Ingredients, Inc.
$3.63 (-1.09%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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