Hedge fund manager William Ackman has taken a large stake in retailer JCPenney (NYSE:JCP) through his Pershing Square Capital Management Company. Ackman, who has a history of activist investing, considers the department store chain undervalued. Ackman didn't detail specific plans for change at Penney, but indicated areas of interest.

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Ackman's Stake
Ackman's firm took a 16.5% stake in Penney and a 10.9% stake in Fortune Brands (NYSE:FO), with its unwieldy cobbled together portfolio of holdings from Jim Beam whiskey to Titleist golf balls. Disclosures of Ackman's stakes through Pershing Square were revealed in 13D filings for the Securities and Exchange Commission. Ackman has previously taken large stakes in Borders Group (NYSE:BGP), Sears Holdings (Nasdaq:SHLD), as well as other notable retailers.

A Penney For His Plans
While analysts are fairly clear on a likely strategy for Fortune Brands - that its business parts might be worth more separately - it's not as clear what Ackman might want to do with his Penney's stake. The retailer has had trouble in the highly competitive department store space against rivals Macy's (NYSE:M) and Dillard's Dept. Stores (NYSE:DDS), and finds itself less well defined than many of its retailing contemporaries. Is it mid-market? Discount? High-line? Some combination of all these? On an earnings and revenue basis, Penney has shown uneven results the last couple of years.

If Past Is Prologue
Ackman has been a successful activist hedge-fund manager, yet his track record has some uneven spots. His recent deal with mall operator General Growth Properties (NYSE:GGP) profited $1 billion for his hedge fund, while his Borders investment has continued to decline in value, though Ackman holds warrants to mitigate this. (To learn more about hedge funds, see Activist Hedge Funds: Follow The Trail To Profit.)

Ackman reportedly has indicated the focus of his Penney investment will be to look at the company's assets and financial condition. With the recent Vornado Realty Trust (NYSE:VNO) investment, a 10% stake in Penney, this obviously suggests that Penney's real estate will be a focus of scrutiny. Ackman and Vornado also indicated they plan to cooperate on their strategies and actions for Penney.

What Should Individual Investors Do?
Whether you are a current Penney shareholder or contemplating becoming one, it's still best to stick your investment disciplines. As a long-term, fundamental value or growth investor, you should assess whether or not you are comfortable with what you think is going on now and what might go on with Penney. You have to analyze and decide if you think the Ackman factor will add value or growth and whether it will be successful.

Though how Ackman's activism will play out is unclear, it's likely not going to be business as usual for Penney. Ackman's successes and failures have earned both justifiable praise and criticism. Also, his interests may not be completely aligned with yours. Think Borders: If you don't have Borders warrants, for example, or have been long the stock, your investment has just about entered the dead zone.

Is It In Your Interests?
Big-stake investors sometimes try to unlock or build shareholder value, but it's not always done in the linear way of business operations for the acquired company. If Ackman pumps up the retail operations for Penney that should eventually be good for the stock. If there are a complicated series of deals involving real estate or other assets which somehow benefit Vornado or Pershing Capital more than individual holders of Penney stock, investors need to keep that possibility in mind, too. Don't just jump on board because Ackman or some other big name investor has; analyze, assess and scrutinize everything you can before you get involved.

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