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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.


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Results for AA
indah sari a.n
25 Oct 14 04:20:51
@mungielnyaRara iyaa $å ​♍ ​å" :) , tmara
HotKeyTrading
25 Oct 14 04:00:06
Stock Picks: Sector Leaders: $TK $AA $CENX $AMAG $FDX $BBBY $CF $F $NKE $BRCD $NI $BHE $HOS $ORCL $SHPG $FINL $INTC $NLY $AAPL $SYMC $LM
Stock Wire
25 Oct 14 01:00:06
Stock Runners: Alcoa Inc. (NYSE:AA), Intel Corporation (NASDAQ:INTC), CGI ... $AA http://t.co/Md4Pv1LkLs
Hit The Bid Radio
24 Oct 14 17:33:06
Commented on StockTwits: no idea man. I am just staying long $AA $QQQ http://t.co/HJJRnrRHBv
exMBB
24 Oct 14 16:06:24
@DennyCrane550 $NOR or $AA?
HotKeyTrading
24 Oct 14 16:00:07
Stock Picks: Sector Leaders: $TK $AA $CENX $AMAG $FDX $BBBY $CF $F $NKE $BRCD $NI $BHE $HOS $ORCL $SHPG $FINL $INTC $NLY $AAPL $SYMC $LM
Matt finston
24 Oct 14 15:21:29
RT @Trefis: U.S. Steel Earnings Preview: Higher Steel Prices And Cost Savings To Boost Results http://t.co/6btRn6uuuW by Trefis Team $X $MT…
Stockaholics
24 Oct 14 13:25:11
Our Penny Stock Alerts Gained 371% In 2 weeks! Sign Up For Free Text Alerts For Our New Pick: http://t.co/dLDRavoCi4 $AA $BRSS $SHOO
Stock Wire
24 Oct 14 12:43:13
Stocks to Watch: UPS, P&G, Amazon, Lear, Alcoa, Microsoft, Pfizer $AA http://t.co/Nv0lcHCa9K
BrutusMaximus
24 Oct 14 12:05:40
last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15%
Alpha Maven
24 Oct 14 12:04:05
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
Wall Street Watkins
24 Oct 14 12:03:08
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
Taylor Schulte
24 Oct 14 12:02:48
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
J Beck Investments
24 Oct 14 12:00:38
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
Quantheta
24 Oct 14 12:00:02
#SENTISHIFTDOWN $TSLA $DIA $TM $SPY $IWM $SMED $PLUG $AA $KBH $SLV #quantheta
Panther Creek
24 Oct 14 11:58:09
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
Kevbeau68
24 Oct 14 11:56:12
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
The Earnings Scout
24 Oct 14 11:56:02
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
Paul b
24 Oct 14 11:54:02
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
Michelle Coffey
24 Oct 14 11:53:55
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
Tienda del Inversor
24 Oct 14 11:53:51
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
John Calhoun
24 Oct 14 11:53:29
RT @StockTwits: Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://…
StockTwits
24 Oct 14 11:53:06
Last year, these 3 stocks were removed from the Dow. Here's what they've done since: $AA +97% $HPQ +64% $BAC +15% http://t.co/cmNz1WczZq
Venator
24 Oct 14 11:18:56
Commented on StockTwits: I am thinking same thing re $AA. Huge ave volume - so...funds tossing 20c back and forth... http://t.co/YCpuUqNzKs
Forex Update
24 Oct 14 10:57:51
RT @howardlindzon: ha - 13 months ago, $AA $BAC and $HPQ were dropped from Dow 30. Here's how they've done afterwards: http://t.co/xtBt8T9u…
DailyStockPicks
24 Oct 14 10:55:20
During this #Ebola outbreak, $AA investors will also want to buy $SMED. They handle medical and hazardous waste http://t.co/vTV3wPBONo
Media Sentiment
24 Oct 14 10:54:53
$AA received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 418
howardlindzon
24 Oct 14 10:52:44
ha - 13 months ago, $AA $BAC and $HPQ were dropped from Dow 30. Here's how they've done afterwards: http://t.co/xtBt8T9uTq"
Mexican Trades
24 Oct 14 09:53:46
$AA uuh $AA http://t.co/VIiwuuSrwD
Media Sentiment
24 Oct 14 09:53:13
$AA received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 389
Leni
24 Oct 14 09:49:57
$AA strong buy This should see a new hi in next few weeks Holding core long position from 8
Trefis.com
24 Oct 14 09:47:36
U.S. Steel Earnings Preview: Higher Steel Prices And Cost Savings To Boost Results http://t.co/6btRn6uuuW by Trefis Team $X $MT $AA
Alex Rubalcava
24 Oct 14 09:10:13
RT @ivanhoff: 13 months ago, $AA $BAC and $HPQ were dropped from Dow 30. Here's how they've done afterwards: http://t.co/dg31JD2Cqg
wininstocks2014
24 Oct 14 08:50:11
AA 16.46 Stock Charts $AA Alcoa Inc. (NYSE) Last Updated: 10/24/2014 10:50:13 AA Stock Chart - 1 Month http:// http://t.co/lV9mgkkVG4
ThinkingProfit.com
24 Oct 14 08:46:01
$AA: 7 open, suited signals indicate continued price increase for about 8 more days. http://t.co/mlDfTZlYwQ
Venator
24 Oct 14 08:43:26
$AA Moment of truth... will it fade from 16.5ish like all recent times?
James P Worthy
24 Oct 14 08:32:51
$AA Alcoa Earnings Preview http://t.co/y90CDfbcxL
Day Trade Alerts
24 Oct 14 08:08:44
RT @ivanhoff: 13 months ago, $AA $BAC and $HPQ were dropped from Dow 30. Here's how they've done afterwards: http://t.co/dg31JD2Cqg
Media Sentiment
24 Oct 14 07:54:14
$AA received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 315
Mexican Trades
24 Oct 14 07:53:34
Go honey $AA http://t.co/dM4Vef4qBQ
ivanhoff
24 Oct 14 07:52:39
13 months ago, $AA $BAC and $HPQ were dropped from Dow 30. Here's how they've done afterwards: http://t.co/dg31JD2Cqg
TraderMinute
24 Oct 14 07:49:18
$AA consolidating above moving averages, bullish sign for breakout coming
Thudder & Wicks
24 Oct 14 07:33:59
$AA #Alcoa to sell ownership stake in Mt. Holly Smelter http://t.co/PP85KGCA2c
Thudder & Wicks
24 Oct 14 07:25:47
Stocks to Watch: $UPS, $PG, $AMZN, $LEA, $AA, $MSFT, $PFE http://t.co/KtuNv1xEPR
Stock Moo
24 Oct 14 06:55:56
$aa: Finacity Appoints Judith S. Schrecker as a Board Director of the Company http://t.co/SHmDPaIMHY
WKRB News
24 Oct 14 06:41:34
Morningstar Gives “BB+” Credit Rating to Alcoa $AA http://t.co/j0qL5ujBKJ
NASDAQ
24 Oct 14 06:34:32
$AA - U.S. Hot Stocks: Hot Stocks to Watch http://t.co/cw0UBTUy1u
Stocks News&Markets
24 Oct 14 06:34:29
$AA - U.S. Hot Stocks: Hot Stocks to Watch http://t.co/cpqOKZTNIz
hotpennystockalert
24 Oct 14 06:19:57
Ecomike: $AA is on its way fast to a http://t.co/9YNOOBy7OA
mystockchoice
24 Oct 14 06:19:35
Ecomike: $AA is on its way fast to a http://t.co/MUI3gCZu64
				
				
By  +Follow October 15, 2013 7:25PM
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