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

By  +Follow October 15, 2013 7:25PM
Tickers Mentioned:

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.



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
31 Oct 14 04:10:09
Alcoa : Assigned Patent http://t.co/p3umrATday $AA
31 Oct 14 04:00:04
Stock Relay
31 Oct 14 02:50:20
$EWZ Current Price Click Here: http://t.co/mSkQexjsAT Also See: $ATRA $UVXY $TNA $AA ~
31 Oct 14 02:13:21
Our Penny Stock Newsletter Alert On MGON Closed up 112.5% Today! Major News: http://t.co/gDCrqEFOy6 $AA $BRSS $SHOO
31 Oct 14 00:54:55
$DAL Short Sales Click Here: http://t.co/a71tKUpD53 Also See: $AA $CCO.TO $ILMN $XLK ~
30 Oct 14 23:38:59
$CREE Quotes Click Here: http://t.co/AWRgRDOs0k Also See: $SLW $PBR $ANV $AA ~
30 Oct 14 23:30:48
Partner Jet $PJT.V is up 183% this week after Q3 release with more gains coming. Find out why: http://t.co/MEpEjkCm4H $AA $XLK $WES
30 Oct 14 22:26:51
$CAT News Click Here: http://t.co/rZezrCqNey Also See: $BABA $AA $DECK $VXX ~
Stock Relay
30 Oct 14 22:20:28
$CMI Change Click Here: http://t.co/2lfy5hTahL Also See: $ABX $MA $Z $AA ~
30 Oct 14 22:00:06
Posted earlier; $AA consolidation for almost 50 minutes http://t.co/9OuMCi7pqD
IH News Desk
30 Oct 14 21:28:29
$BDCL Dividend Click Here: http://t.co/6NVedfqntl Also See: $AA $SDRL $AAPL $BDCL ~
Frank Diaz
30 Oct 14 21:27:05
Current holdings going into tomorrow. $AA DEC 16. $ANET NOV 80. $BABA LONG 100. $FB DEC 80. $HAL JAN $57.50.
30 Oct 14 21:22:53
$BBH Exchange Click Here: http://t.co/aRp3efw2hr Also See: $UCO $JASO $AA $XLP ~
Stock Relay
30 Oct 14 20:42:34
$BITA Ask Click Here: http://t.co/kYsDdQIfMe Also See: $AA $BAC $PCLN $TVIX ~
30 Oct 14 20:42:26
Our Penny Stock Newsletter Alert On MGON Closed up 112.5% Today! Major News: http://t.co/dvxYQnSJab $AA $BRSS $SHOO
30 Oct 14 20:34:55
$BABA EOD Data Click Here: http://t.co/OstZgdP8YW Also See: $DEE.TO $DBA $AA $AKS ~
30 Oct 14 20:30:17
$BABA Summary Click Here: http://t.co/GLoXly1AMB Also See: $TVIX $AA $SH $XLU ~
30 Oct 14 19:30:50
$AMRN Open Click Here: http://t.co/JawkizjQch Also See: $YELP $ING $DAL $AA ~
30 Oct 14 19:05:15
http://t.co/hjgLwIcNgz lookn4wins: $AA Stock Chart $AA Most recent stock chart and: lookn4wins http://t.co/ZUHEBpTVll http://t.co/hjgLwIcNgz
30 Oct 14 19:05:14
http://t.co/QkCFZ8H3V8 lookn4wins: $AA Stock Chart $AA Most recent stock chart and: lookn4wins http://t.co/1KD8XBGu63 http://t.co/QkCFZ8H3V8
30 Oct 14 18:43:09
$AMAT P/E Ratio Click Here: http://t.co/fKRjeGKsnz Also See: $BIDU $XLP $AA $MU ~
Stock Relay
30 Oct 14 18:27:34
$AMRN 52Wk Low Click Here: http://t.co/XI17cHkpGO Also See: $AXCG $APT $AA $JDST ~
30 Oct 14 18:06:57
Partner Jet $PJT.V is up 183% this week after Q3 release with much more room to increase. Find out why: http://t.co/MEpEjkCm4H $BAC $WFC $AA
30 Oct 14 17:22:16
$AA EOD Data Click Here: http://t.co/Gv35a6Vn0z Also See: $TUBE $SH $AA $GMCR ~
Rosner Stocks
30 Oct 14 17:19:56
$AA Yield Click Here: http://t.co/5AjbSN4MBf Also See: $MOBL $ILMN $UUP $ATRA ~
30 Oct 14 17:19:49
$AA Open Click Here: http://t.co/JwQvBX8Zem Also See: $MHYS $RIG $BMRN $DBA ~
30 Oct 14 17:18:41
$AA News Click Here: http://t.co/swk6gjhfFr Also See: $DDD $FITX $VIMC $VOIS ~
30 Oct 14 17:18:15
$AA Quotes Click Here: http://t.co/PakBMx5hvg Also See: $AMZN $XLB $MS $VOIS ~
30 Oct 14 17:17:50
$AA % Change Click Here: http://t.co/WErcm9Tpb3 Also See: $FCEL $LNG $X $BBH ~
30 Oct 14 17:17:30
$AA Ex-Div Date Click Here: http://t.co/bvCD5tmNZp Also See: $ACHN $MOBL $IYT $ATRA ~
30 Oct 14 17:17:10
$AA Short Sales Click Here: http://t.co/eS3GA491lO Also See: $SRPT $X $TUBE $MOBL ~
IH News Desk
30 Oct 14 17:16:23
$AA Change Click Here: http://t.co/5hAJWhftLA Also See: $ILMN $MHYS $XLF $KRED ~
30 Oct 14 17:15:49
$AA Summary Click Here: http://t.co/sm2yDCLbjx Also See: $TWTR $NLNK $ITB $ANV ~
Langan Stocks
30 Oct 14 17:15:29
$AA Stock Message Board Click Here: http://t.co/eTp2CAlOH4 Also See: $ACHN $GE $FLY.V $MCD ~
30 Oct 14 17:14:38
$AA Last Price Click Here: http://t.co/1RCxHkZGF2 Also See: $XLF $DEE.TO $ATRA $INFY ~
Stock Relay
30 Oct 14 16:25:50
$AA 52Wk Low Click Here: http://t.co/VJAaNfCBXr Also See: $TBT $TSLA $INCC $GDX ~
Stock Relay
30 Oct 14 16:25:25
$AA EOD Data Click Here: http://t.co/XzBODzPSFP Also See: $JNK $FCX $Z $XLY ~
Stock Relay
30 Oct 14 16:25:01
$AA Financials Click Here: http://t.co/vJRfpEBAvg Also See: $CTIX $GLW $FL $X ~
Stock Relay
30 Oct 14 16:24:42
$AA Summary Click Here: http://t.co/tlKyObGF3W Also See: $GOOGL $LNKD $MMM $INTC ~
30 Oct 14 16:07:16
30 Oct 14 16:03:08
Partner Jet $PJT.V is up 183% this week after Q1 release with much more room to increase. Find out why: http://t.co/MEpEjkCm4H $GM $F $AA
30 Oct 14 16:00:09
Media Sentiment
30 Oct 14 15:37:18
$AA received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 712
Stock Signaling
30 Oct 14 15:31:35
Upgraded Stocks Active After Hours: $VCRA $TTWO $LOPE $V $GRUB $AMED $DOW $NEM $AA $CLF $SFUN $TWTR $MSG $BWA $MDLZ http://t.co/Vtx6dLy0Nw
30 Oct 14 14:56:09
[Key Gainers and Losers] + $AFI 7.875% 12/15/2018 (1): +4.3% + $AVP 5% 3/15/2023: +2.5% - $AA 5.125% 10/1/2024: -2.0%
Stock Wire
30 Oct 14 14:27:29
Judge hears NC challenge to Alcoa's rights to dams $AA http://t.co/iLCGxJxi1X
30 Oct 14 14:13:16
$LNKD Shares Click Here: http://t.co/z2nzrByckH Also See: $CREE $BDCL $TLT $AA ~
30 Oct 14 14:06:52
$KOL Short Sales Click Here: http://t.co/XifZQj8ioO Also See: $FSLR $NUGT $EBAY $AA ~
Chasing Stars
30 Oct 14 14:04:34
$JNUG Short Sales Click Here: http://t.co/g003N7oZwY Also See: $WMIH $AA $JASO $USO ~
30 Oct 14 13:44:53
$AA: 7 open, suited signals indicate continued price increase for about 9 more days. http://t.co/mlDfTZlYwQ
By  +Follow October 15, 2013 7:25PM



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