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Turnaround Stock Portfolio Week #4: Our Losers Have (Just Barely) Prevailed!

By  +Follow October 15, 2013 7:25PM
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After last week’s underwhelming performance, we check in on the Equities.com turnaround stock portfolio experiment as it embarks on its fourth week of existence edging almost imperceptibly into the positive.

At the time of our last check-in, our portfolio of struggling companies had posted a weekly drop of just over 7 percent, mostly due to the seemingly relentless debacles in which J.C. Penney (JCP) and Tower Group (TWGP) currently find themselves. But the fates had a different plan in mind for this week; while J.C. Penney continues to bleed (having shed another 6 percent of its stock price since our last check-in), Tower Group has been able to slightly pare back some losses, and all other components have posted at least respectable gains, pushing the overall performance of the portfolio to an ever-so-slight weekly gain of 0.034350499 percent.

 

TURNAROUND STOCK METHODOLOGY

To design our Turnaround Stock Portfolio, we looked for stocks that have had a negative return on the year or have at least lost significant value in the last two years. They also possess the fundamentals to potentially regain their lost value, and are either actively engaged in or are in dire need of a radical turnaround.

To diversify the portfolio, we picked one stock from each sector, and tried to distribute our picks between micro, small, mid and large cap companies.

 

Component Spotlight

As we continue tracking the progress of our portfolio, we will be profiling these companies to give you an idea of why we felt their inclusion to be warranted. This week, we will be having a closer look at our Commodities, Energy, and Basic Materials picks.

 

Materials Sector Pick: Alcoa, Inc. (AA)
The relative slowing down over the last few months of the miracle of seemingly exponential Chinese growth is starting to cause problems for a number of metals producers, as iron ore and copper prices decline on a supply glut that analysts predict will only get bigger next year. For Alcoa, whose business revolves around the production and sale of aluminum, supply glut has been an ongoing feature of the industry for nearly a decade, a fact that has resulted in the price pressure that one might expect. For the recently ended quarter, for instance, aluminum futures on the London Metals Exchange are down 13 percent from the same period last year to an average of $1,845 per metric ton. The situation is being compounded for Alcoa by the recent uptick in China's own production. In late 2011, Alcoa's shares were trading for just shy of $12 dollars per, but by the end of August 2013 had dropped to about $7.70, with no end of aluminum oversupply in sight.

Why we Picked Alcoa
When Alcoa reported earnings for the recently-ended third quarter, nobody was expected a beat, but there it was. While the company most certainly benefitted from relatively more stable aluminum prices during the period, the real successes were found in cost cutting, greater production efficiency, and increases in sales to the commercial building, automobile and aerospace industries. Alcoa had forecast capital expenditures for 2013 at some $1.5 billion, but as of the recently-ended quarter the company had only spent some $770 million of that. Furthermore, the company is looking to restructure its upstream business in order to better navigate lower aluminum prices, which are expected to stay that way for the conceivable future. A large part of this effort will be focused on becoming less dependent on the London Metals Exchange that sets pricing, while taking advantage of the bullish atmosphere that currently prevails among both airplane and automobile manufacturers. If the company can pull off this effort to diversify its downstream business, then there is no reason why shares couldn't start making significant gains.

 

Energy Sector Pick: Quicksilver Resources (KWK)
For a great number companies whose business revolves around the location, extraction, and production of oil and gas from unconventional reserves, 2013 has been a banner year as America’s “shale boom” continues to transform the energy economy. The trend so far has looked as though it will favor independent oil and gas drillers more than it will the (relatively) clunky, old-school “super majors” like Chevron (CVX) and ExxonMobil (XOM) , whose traditional business models tend to be based on the ownership and year-over-year replenishment of equity oil reserves. Quicksilver, however, was particularly affected by the drop in natural gas prices in the late part of last year and the beginning of this one. Over the past twelve months, shares have taken a nearly 50 percent cut, and the company has struggled under the weight of both debt and an excessive number of assets. This is a far cry from five years ago when shares were trading for over $40 apiece.

Why we Picked Quicksilver
Despite its troubles, Quicksilver Resources has still got its feet firmly planted in shale prospects, particularly in Texas’s highly coveted Barnett Shale, as well as in Wyoming, Colorado, Montana, as well as Alberta and British Columbia in Canada. It has the technical know-how to reach unconventional plays, and has been taking steps to unburden itself financially, such as its sale earlier in the year of 25 percent of its interests in the Barnett to Tokyo Gas for $485 million, which significantly reduced its debt. The company has furthermore turned out to be the portfolio’s best performer, with shares up over 36 percent since Sep 25, and over 4 percent in the last week to the current price of $2.60.

 

Commodities Sector Pick: Cliff’s Natural Resources (CLF)

One year ago, Cliff's Natural Resources was trading for over $45 per share. Last June, shares were barely over $15, though they've recuperated slightly to the current price of $22.50. Cliff's has suffered a great deal from a slower Chinese economy, particularly with the resulting tumble in iron ore prices  that this has caused. China is the world's largest consumer f the metal, and mining companies over the past ten years have been scrambling to up production as demand continually outstripped supply. The second half of 2013 has seen this trend reversing, with many analysts predicting substantial drops in iron ore prices that is sure to cause all sorts of trouble for mining companies. For Cliff's, however, the hurt is already here, as in 2013 the company saw less exports to Asian countries overall. Furthermore, the company is saddled with large debts, over $3 billion in the long-term, abd its assets cover just barely over half of that amount. Other than iron ore, Cliff's mines coal, which is an industry whose future becomes more uncertain with every passing day. Shares have lost about 40 percent over the course of 2013.

Why we Picked Cliff’s

Despite the industry headwinds faced by the company, and its tremendous amount of debt, all is by no means lost for Cliff's. The company is not the only miner who is going to be dealing with lower iron ore prices, and Chinese growth is only relatively lower, and the Asian economy in general could still provide some price support in the future, even if 2014 proves to be a rough year. The company also looks to be actively taking measures to hedge against price pressure, most recently with its deal with US Steel giant AK Steel (AKS) to supply iron ore pellets through 2023. Last year, AK used 6 million tones of irone ore. Furthermore, the company is in the process of restructuring some of its production, particularly at its Canadian mines, and this along with finding buyers outside of China offer enough room for Cliff's to bounce back.

Here's how our portfolio looks overall, as we approach its one-month birthday, still returning in the negative by 2.21 percent:

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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Results for AA
Jake13
4 May 15 15:04:06
Z Zillow Group, Inc. Tick Click Here -> http://t.co/w5lbBdL3Pc Trending $Z $TIP $X $AA #Z #finance #stockmarket
Investors Hangout
4 May 15 14:52:09
GPRO GoPro, Inc. Market Cap Click Here -> http://t.co/e5hGweNdmk Trending $GPRO $AA $GLOW $MU #GPRO #finance #share
lookn4wins
4 May 15 14:44:36
AA Alcoa, Inc. Stock Forum Click Here -> http://t.co/lkKxQz5LL1 Trending $AA $SYY $TQQQ $AAPL #AA #stockmarket #invest
BreakingStocksNews
4 May 15 14:20:02
$AA: New SEC Filing for AA: Form 425 (No. 0001193125-15-169281): http://t.co/WYXGpMeuaG
Latest SEC Filings
4 May 15 14:19:17
NEW SEC Filing for $AA filed a moment ago: http://t.co/Zx3CeMmlE4 http://t.co/emKyWW0UZL
Stock_Tracker
4 May 15 14:02:35
XLB Materials Select Sector SPDR News Click Here -> http://t.co/TGJnTEqAWt Trending $XLB $AAPL $TRQ $AA #XLB #finance #stockmarket
nasdaqfan
4 May 15 14:00:14
TVIX VelocityShares Daily 2x VIX Short Term ETN Investor Opinions Click Here -> http://t.co/8nhBCqyjiy Trending $TVIX $AA $TBT $MBLY…
Stock Forums
4 May 15 13:55:04
MDY SPDR S&P MidCap 400 Ideas Click Here -> http://t.co/RsAg5mTq43 Trending $MDY $MCP $AA $DXJ #MDY #tradeideas #stocks
Jake13
4 May 15 13:46:34
BIIB Biogen Inc. Current Price Click Here -> http://t.co/YUg0mSOpqu Trending $BIIB $AA $CVS $SMN #BIIB #stock #investing
Investors Hangout
4 May 15 13:44:36
AA Alcoa, Inc. News Click Here -> http://t.co/X9xm1JcFWu Trending $AA $OSLH $ASHR $GLD #AA #investing #pennystocks
Frankster
4 May 15 13:00:44
$AA not sure it'll hold 14, the bounce Friday was a gift to sell into, I'm sure we'll revisit mid 13s again shortly
Emylers
4 May 15 12:58:09
RGSE Real Goods Solar, Inc. Last Trade Click Here -> http://t.co/9pRchzyGQn Trending $RGSE $ATHM $AA $LNC #RGSE #finance #stocks
IH NASDAQ OMX
4 May 15 12:49:34
ER.TO Eastmain Resources, Inc. Dividend Click Here -> http://t.co/Kh5X47UqjP Trending $ER.TO $GDX $NXPI $AA #ER.TO #share #tradeideas
FlashRatingsHOT
4 May 15 12:42:23
$AA has 5 analyst ratings in the last 7 days. Median target: $16.5 (17% upside). View here: https://t.co/TYTbstURLC #AA
Invest | Donate
4 May 15 12:22:52
@clayton_dd: UUP ProShares Ultra VIX Short-Term Futures ETF Bid Click Here -> http://t.co/E6mjPxDEyj Trending $UUP $AA $BRK/B $FV #UUP #i…
Rosner Stocks
4 May 15 12:03:09
XLK Consumer Staples Select Sector SPDR Stock Forum Click Here -> http://t.co/W6yDlH5oeG Trending $XLK $AA $ERX $JNUG #XLK…
SayNoToPlusnet
4 May 15 12:02:10
Hayul #Hayul clayton_dd: UUP ProShares Ultra VIX Short-Term Futures ETF Bid Click Here -> http://t.co/3ek3Z9k7h9 Trending $UUP $AA $BRK/…
clayton
4 May 15 12:01:34
UUP ProShares Ultra VIX Short-Term Futures ETF Bid Click Here -> http://t.co/YQNxiM7GLf Trending $UUP $AA $BRK/B $FV #UUP #invest…
PolgarStocks
4 May 15 11:59:35
TLT Direxion Daily 20 Year Plus Treasury Bull 3x Shares Last Price Click Here -> http://t.co/k6Gee8Td2R Trending $TLT $FCX $AA $JNJ…
IH News Desk
4 May 15 11:58:34
SOXL Direxion Daily Semiconductor Bear 3x Shares Market Cap Click Here -> http://t.co/yKngxHSY1X Trending $SOXL $UWTI $ABX.TO $AA…
Jordan Black
4 May 15 11:56:52
Long $AA here
Investors Hangout
4 May 15 11:56:35
NYMX Ohr Pharmaceutical, Inc. Market Cap Click Here -> http://t.co/SaZS00sK2r Trending $NYMX $DGAZ $AA $UGAZ #NYMX #investing #finance
nasdaqfan
4 May 15 11:53:04
HZU.TO Biotech iShares Day Low Click Here -> http://t.co/ndjcngpcwr Trending $HZU.TO $AA $PXD $UUP #HZU.TO #tradeideas #tradeideas
lookn4wins
4 May 15 11:52:03
GILD SPDR Gold Trust Shares Short Sales Click Here -> http://t.co/aT9EBt63Bx Trending $GILD $AA $TWTR $AXY.TO #GILD #nasdaq #nasdaq
leahanne
4 May 15 11:44:35
AA Alcoa, Inc. Stock Forum Click Here -> http://t.co/iwZ2sEw2Cz Trending $AA $XLK $GILD $CURE #AA #tradeideas #nasdaq
K.W. Peery
4 May 15 11:41:18
RT @PBT_Justine: .@Alcoa CEO Klaus Kleinfeld says demand for aluminum has never been stronger: http://t.co/Jf2Pd5aMkn $AA http://t.co/Efefe…
James DiPlata
4 May 15 11:18:38
RT @TradingAlpha11: $SPY $AAPL $TWTR $SWN $PNW $SCTY $PDCO $KORS $TLT $ISRG $LNKD $CCL $FSLR $EW $C $CAH $APC $AA $BABA $ABT Analysis:https…
stockschamp
4 May 15 11:17:27
$71,000 in ONE TRADE!! By Follwing Their Signals More Info Here http://t.co/8WvnrVmkBS .. $AA $BRSS $SHOO
Eric
4 May 15 10:55:42
added contract on weekly's $TWTR -- 39.5 @.28...see if she comes back...if not...will be par for most of my trades lately...exception of $AA
Investors Hangout
4 May 15 10:53:05
ISIS iShares Dow Jones U.S. Home Construction 52Wk High Click Here -> http://t.co/7fXTHxYAbT Trending $ISIS $FDX $AA $FSLR #ISIS…
Lucky Jimmy
4 May 15 10:52:34
HERO Herbalife Ltd. Exchange Click Here -> http://t.co/oYtejHQtV2 Trending $HERO $AA $SSO $NBG #HERO #pennystocks #pennystocks
BreakingStocksNews
4 May 15 10:52:02
$AA: Alcoa sues, claims rival stole trade secrets: http://t.co/uVH91clFLH
leahanne
4 May 15 10:49:34
EOG Eastmain Resources, Inc. Financials Click Here -> http://t.co/BAcaaRNkm1 Trending $EOG $AA $CNQ.TO $CVS #EOG #finance #nasdaq
jim50
4 May 15 10:49:34
ER.TO Esperion Therapeutics, Inc. Change Click Here -> http://t.co/GQrbadjLdy Trending $ER.TO $AA $SLV $CVS #ER.TO #pennystocks…
Rosner Stocks
4 May 15 10:49:17
DIS Direxion Daily Gold Miners Bear 3x Shares E.P.S. Click Here -> http://t.co/0vA8PbI8x8 Trending $DIS $FTNT $BOIL $AA #DIS…
Capital Market Labs
4 May 15 10:41:27
$AA vs. $EURN.Y vs. $NEM vs. $NUE Compared Across 9 Critical Measures http://t.co/HeoeVvHULS http://t.co/LVKWW417Oy
Trading Alpha
4 May 15 10:26:42
$SPY $AAPL $TWTR $SWN $PNW $SCTY $PDCO $KORS $TLT $ISRG $LNKD $CCL $FSLR $EW $C $CAH $APC $AA $BABA $ABT Analysis:https://t.co/L2A7ASCiTU
Brandon Mistero
4 May 15 10:24:45
If $AA goes below $14, I think I'll be out. Lucky enough to have that huge move upside to basically move my position to the flat line.
danrocks
4 May 15 10:01:06
TLT Direxion Daily Small Cap Bull 3x Shares Exchange Click Here -> http://t.co/cD3jA9Nx62 Trending $TLT $AA $RGSE $UPRO #TLT #invest…
Stock Wire
4 May 15 09:58:10
Alcoa Inc (NYSE:AA) a Buy: Standpoint $AA http://t.co/Qzi65TGjFf
nasdaqfan
4 May 15 09:57:07
OIH Oracle Corp. E.P.S. Click Here -> http://t.co/O6kncTgm6d Trending $OIH $MDY $G.TO $AA #OIH #stocks #pennystocks
Seeking Alpha Alerts
4 May 15 09:55:17
@brianwilbs $AA A Tailwind For Alcoa That Most Seem To Be Overlooking http://t.co/kTYEVAPqdZ
Seeking Alpha Alerts
4 May 15 09:55:17
@AJEvansII $AA A Tailwind For Alcoa That Most Seem To Be Overlooking http://t.co/kTYEVAPqdZ
Seeking Alpha Alerts
4 May 15 09:55:16
@booksnends $AA A Tailwind For Alcoa That Most Seem To Be Overlooking http://t.co/kTYEVAPqdZ
Seeking Alpha Alerts
4 May 15 09:55:16
@hansonecon $AA A Tailwind For Alcoa That Most Seem To Be Overlooking http://t.co/kTYEVAPqdZ
Seeking Alpha Alerts
4 May 15 09:55:16
@Jpmidd16 $AA A Tailwind For Alcoa That Most Seem To Be Overlooking http://t.co/kTYEVAPqdZ
Breaking News Now
4 May 15 09:52:04
$AA: Alcoa Inc (NYSE:AA) a Buy: Standpoint: http://t.co/cSFib8o1RD
DennyT
4 May 15 09:45:05
ADMD American Eagle Outfitters, Inc. 52Wk High Click Here -> http://t.co/EnHZhvc3Jh Trending $ADMD $BRK/B $AA $AAPL #ADMD #stocks…
lookn4wins
4 May 15 09:44:35
AA Alcoa, Inc. Ask Size Click Here -> http://t.co/ZNSyujLwfN Trending $AA $C $MCD $XOM #AA #stocks #stockmarket
Peter McCaffrey
4 May 15 09:31:51
@jimcramer $AA Is a core position felt it was new tecnology bet too bad it trades as comodity, cost basis 8.33 tk u JC and KK
				
				
By  +Follow October 15, 2013 7:25PM
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