J.C. Penney Co. Inc. (NYSE: JPC) and the Kmart and Sears divisions of Sears Holdings Corp. (NASDAQ: SHLD) are supposes to be the losers among large U.S. retailers. Their stores are too old, their brands too badly damaged, and their balance sheet too frail for either to do well in the white hot competition for holiday sales. However, their stock prices say otherwise, which means there is some expectation that they will outperform forecasts.

The case against a J.C. Penney recover is compelling. Under fired CEO Ron Johnson same-store sales and revenue dropped by over 20% per quarter for over a year. Since he left the company in April, sales have continued to drop, although they showed a tiny tick up last month. Penney is low on cash many analysts believe, despite an infusion early in the year. However, its stock has risen 25% in the past month.

Sears Holdings has continued to dismantle itself. It has sold off some of its better locations, and spun off divisions. And, its remaining locations are among the most dank of those of any retailer. And, it lacks the balance sheet to launch the kind of marketing salvo that much larger retailers like Wal-Mart Stores Inc. (NYSE: WMT) can. There is absolutely no reason to believe the sales of the two division can outperform the industry average in the last two months of 2013. However, its stock prices has risen almost 20% in a month.

There are alternative theories about why the share of both companies have done well. The first is that large investors may take significant positions and try to dismantle them. Such a process could involve selling real estate. Another alternative is the shuttering of thousands of stores, so that the only ones left standing are those which make money.

Or, in the language of Wall St., the share in both have been “oversold.” Each company must have some value based on hundreds of thousands of customers, and billions of dollars in sales. With the right mix of merchandising and marketing, J.C. Penney or the Kmart and Sears franchises might mount the most tepid of comebacks, but enough so that their share prices do not continue to race lower and lower.

J.C. Penney, Sears and Kmart could be solid performers this holiday season, or, at least some investors think so.

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