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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:

Results for AA
GavinGreenberg
16 Apr 14 18:06:34
$AA: US stocks rise, extending gains into third day http://t.co/pQRv5SxLBC
Jaron Baker
16 Apr 14 18:04:04
$PAY Considering investing in $AA $LB $QLYS Must have http://t.co/f9l62uSP65
Stock Herald
16 Apr 14 17:57:35
$AA: US stocks rise, extending gains into third day http://t.co/FvwQiumzHk
Stock News 24
16 Apr 14 17:49:09
$AA - US stocks rise, extending gains into third day -> http://t.co/AWWnIA5JBz #stock #stocks #stockaction
Mariah
16 Apr 14 17:48:39
RT @SiurmaJuliaf8: ☯Gain Followers ☯RT This ☯MUST FOLLOW ME I FOLLOW BACK ☯Follow everyone who rts ☯Gain #GAIN #FOLLOWTRICK #ANDROID $å%%
Inyouaf9
16 Apr 14 17:48:02
RT @SiurmaJuliaf8: ☯Gain Followers ☯RT This ☯MUST FOLLOW ME I FOLLOW BACK ☯Follow everyone who rts ☯Gain #GAIN #FOLLOWTRICK #ANDROID $å%%
CHART OF THE DAY
16 Apr 14 17:47:19
$AA - one of the strongest charts out there, updated chart, fresh breakout today http://t.co/jCr2o3Kg6X
Kevin F.
16 Apr 14 17:47:18
$AA - one of the strongest charts out there, updated chart, fresh breakout today http://t.co/fKgnaNLkNv
Mining Man
16 Apr 14 17:46:06
want some aluminium #think $AA, $AWC at http://t.co/hXfxRcDUtC
Kristy
16 Apr 14 17:43:10
RT @SiurmaJuliaf8: ☯Gain Followers ☯RT This ☯MUST FOLLOW ME I FOLLOW BACK ☯Follow everyone who rts ☯Gain #GAIN #FOLLOWTRICK #ANDROID $å%%
Olikafm9
16 Apr 14 17:42:52
RT @SiurmaJuliaf8: ☯Gain Followers ☯RT This ☯MUST FOLLOW ME I FOLLOW BACK ☯Follow everyone who rts ☯Gain #GAIN #FOLLOWTRICK #ANDROID $å%%
SiurmaJuliaf8
16 Apr 14 17:42:02
☯Gain Followers ☯RT This ☯MUST FOLLOW ME I FOLLOW BACK ☯Follow everyone who rts ☯Gain #GAIN #FOLLOWTRICK #ANDROID $å%%
Briefing.com
16 Apr 14 17:33:14
April corporate #earnings conference calls/webcasts http://t.co/bcMAaa3Vgy $BBBY $IGTE $AA $JPM $FAST $INTC $YHOO $RAD $PIR
Stock Herald
16 Apr 14 17:01:34
$AA: [video] Cramers earnings edge http://t.co/HbxibxvTxV
Informer
16 Apr 14 16:55:37
$AA: [video] Cramers earnings edge http://t.co/AxX4j0YXlX
The Good Trader
16 Apr 14 16:55:35
$AA All Steel Must Pass Through Fire http://t.co/rcHVtKhCMG
Stock Wire
16 Apr 14 16:51:05
All Steel Must Pass Through Fire $AA http://t.co/019nCVLlMi
LoveStockNews
16 Apr 14 16:42:32
$AA - [video] Cramers earnings edge -> http://t.co/JuRFeH91gt #stock #stocks #stockaction
Informer
16 Apr 14 16:34:04
$AA: US stocks open higher; Yahoo soars in early trade http://t.co/Jx6SHzy2Yw
Sandman
16 Apr 14 16:30:34
RT @Dvm001Mike: My little watch list. $BWP, $AA, $HK, $OAS, $GPT, $HTA, $NAT, $JNS
StockNews24
16 Apr 14 16:21:46
$AA - US stocks open higher; Yahoo soars in early trade -> http://t.co/OGbMFvlzHA #stock #stocks #stockaction
Mitch
16 Apr 14 16:14:34
RT @Dvm001Mike: My little watch list. $BWP, $AA, $HK, $OAS, $GPT, $HTA, $NAT, $JNS
Mike
16 Apr 14 16:06:23
My little watch list. $BWP, $AA, $HK, $OAS, $GPT, $HTA, $NAT, $JNS
12Stocks.com
16 Apr 14 16:01:31
S&P500 #Stocks Trend $YHOO $VLO $IR $FTR $GT $PSX $AGN $AA $FLS $ROK $HST $SLM $GPC $MPC $EMN $PH $OKE $PXD @ http://t.co/RPeaHBIw7y
Counter Hedge
16 Apr 14 15:56:41
Significant breakouts today. #1. $AA http://t.co/lqHUJyC4UJ
Timothy Connolly CFA
16 Apr 14 14:49:47
$AA closing pretty much HOD. Hasn't seen these levels since 8/2011.
BradTrader
16 Apr 14 14:46:04
$AA US stocks rise, extending gains into third day http://t.co/liEE0pVT0U
Mining Man
16 Apr 14 14:31:31
want some aluminium #think $AA, $AWC at http://t.co/hXfxRcDUtC
Imani
16 Apr 14 14:26:21
RT @ImSIng3r8a: ☯Gain Followers ☯RT This ☯MUST FOLLOW ME I FOLLOW BACK ☯Follow everyone who rts ☯Gain #GAIN #FOLLOWTRICK #FOLLOWBACK $å-5
Veronica
16 Apr 14 14:26:09
RT @ImSIng3r8a: ☯Gain Followers ☯RT This ☯MUST FOLLOW ME I FOLLOW BACK ☯Follow everyone who rts ☯Gain #GAIN #FOLLOWTRICK #FOLLOWBACK $å-5
Kailee
16 Apr 14 14:26:03
RT @ImSIng3r8a: ☯Gain Followers ☯RT This ☯MUST FOLLOW ME I FOLLOW BACK ☯Follow everyone who rts ☯Gain #GAIN #FOLLOWTRICK #FOLLOWBACK $å-5
Kristi S. Fenley
16 Apr 14 14:25:57
RT @ImSIng3r8a: ☯Gain Followers ☯RT This ☯MUST FOLLOW ME I FOLLOW BACK ☯Follow everyone who rts ☯Gain #GAIN #FOLLOWTRICK #FOLLOWBACK $å-5
ImSIng3r8a
16 Apr 14 14:19:49
☯Gain Followers ☯RT This ☯MUST FOLLOW ME I FOLLOW BACK ☯Follow everyone who rts ☯Gain #GAIN #FOLLOWTRICK #FOLLOWBACK $å-5
BradTrader
16 Apr 14 14:18:05
$AA Stocks to Watch Thursday: Alcoa Inc, Halliburton Company, and AOL, Inc. http://t.co/jaFbuKkyuZ
Daniel64
16 Apr 14 14:05:00
Bought more $AA (buy stop hit at $13.25). Also..wait, that's it.A couple stops hit last week.Sold $IVV then immediately redeployed 2 sectors
The Good Trader
16 Apr 14 14:04:34
$AA Alcoa And Unfavorable Aluminum Prices http://t.co/6n4RKkO7dV
Stock Wire
16 Apr 14 14:01:56
Alcoa And Unfavorable Aluminum Prices $AA http://t.co/riaDGrQ2kA
BlueFielder
16 Apr 14 14:00:03
At least my $AA had a good day.
Shomik Ghosh
16 Apr 14 13:45:54
Sold $aa shares + 6.7%, textbook breakout today, will buy back as I think it will retest breakout level, if not I miss out on continuation
Scott Thomas
16 Apr 14 13:39:45
RT @OptionsHawk: $AA - Alcoa - been little reason to look elsewhere, clean breakout today
MoneyShow
16 Apr 14 13:39:35
$SPY $AA $CSTM $STZ Top YTD Industry Groups http://t.co/TjXj8Oe6aF
Traders Expo
16 Apr 14 13:39:13
$SPY $AA $CSTM $STZ Top YTD Industry Groups http://t.co/57bi4Cl0xR
TomAspray
16 Apr 14 13:38:45
$SPY $AA $CSTM $STZ Top YTD Industry Groups http://t.co/r5pySGVTLJ
MoneyShow
16 Apr 14 13:38:06
$SPY $AA $CSTM $STZ Top YTD Industry Groups http://t.co/TjXj8Oe6aF
Gabriel Haro
16 Apr 14 13:31:12
@JBoorman Three White Soldiers? $AA
BradTrader
16 Apr 14 13:15:04
$AA All Steel Must Pass Through Fire http://t.co/FdKjI2b2DY
Informer
16 Apr 14 13:12:37
$AA: All Steel Must Pass Through Fire http://t.co/O6bd5WODY3
Swing Trade Alerts
16 Apr 14 13:08:51
THEFLYNEWS:$C $AAPL $TSLA $TWTR $AA $BAC $NFLX Options Update; April 16, 2014: Full Story http://t.co/ZcmvF4S1qj
SNN Team
16 Apr 14 13:08:36
$AA - All Steel Must Pass Through Fire -> http://t.co/aMxw4AhAUH #stock #stocks #stockaction
				
				
By  +Follow October 15, 2013 7:25PM
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