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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
Stockmarketsvane
20 Aug 14 17:14:07
US Swing Portfolio, selling $AA at end of day next trading day. http://t.co/nd2iSPK50W
Polyticks
20 Aug 14 17:13:41
RT @michaelsantoli: Ginni Rometty begging to have $IBM booted RT @hmeisler $AA and $HPQ basically doubled since getting kicked out of $DJIA…
Financial Headlines
20 Aug 14 17:01:04
$AA: How the Dow Jones industrial average did Wednesday http://t.co/HHw9NsJA4Q http://t.co/f8WqokCkgW
Rosner Stocks
20 Aug 14 16:58:19
$AA P/E Ratio http://t.co/H2s5ApAPxB Also See: $YPF $DGAZ $SLW $RE.TO ~
Langan Stocks
20 Aug 14 16:51:29
$AA Open http://t.co/KczZYhtUpG Also See: $UUP $KMI $JD $HNU.TO ~
Investors Hangout
20 Aug 14 16:39:27
$AA Investor Opinions http://t.co/g9q4XoKlXX Also See: $ARO $SDS $GOOGL $DNAX ~
PolgarStocks
20 Aug 14 16:35:58
$AA Volume http://t.co/1EkBqeqatY Also See: $EPI $FXI $CORN $HD ~
nasdaqfan
20 Aug 14 16:34:14
$AA Dividend http://t.co/kjJZB9POIf Also See: $AAPL $MINE $AXP $VXX ~
Tea Party Mobile
20 Aug 14 16:32:46
http://t.co/U6PA50bBV0 $TVIX | #USMarkets #EQUITIES Overpriced Comparable To Assumed Risk to gain a few %!! $a $apb $arg $akam $aa $alxn
Stock Forums
20 Aug 14 16:11:13
$AA Investor Opinions http://t.co/EH7rlJV8yb Also See: $GS $SUMR $MDY $INTC ~
Business News Now
20 Aug 14 16:01:05
$AA: Billionaire in Middle of Bribery Case Avoids U.S. Probe http://t.co/xvDTg5bj0X http://t.co/K2ea2AaZpF
Rosner Stocks
20 Aug 14 15:57:51
$XLU E.P.S. http://t.co/ZU4BoB5knD Also See: $FSLR $AEZS $AA $DGLY ~
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20 Aug 14 15:57:39
$AA % Change http://t.co/E31srFZpL6 Also See: $HGU.TO $TQQQ $AXP $XIV ~
Minotaur
20 Aug 14 15:05:26
$AA still looks good within long term trend http://t.co/OcC3Mkqs1S
Stock Updates
20 Aug 14 15:01:05
$AA: Business Highlights http://t.co/4fPbyc6lDf http://t.co/HKCPVQo5YD
Investors Hangout
20 Aug 14 14:59:02
$XLF Day Low http://t.co/bGy82GQo3c Also See: $JRJC $JD $LOW $AA ~
Stock Updates
20 Aug 14 14:01:05
$AA: U.S. shipping firm sues Alcoa for $300 mln in Guinea bauxite row http://t.co/HB5AyfEpJy http://t.co/m452Vt74mf
Barron's 400 Index
20 Aug 14 13:41:09
RT @michaelsantoli: Ginni Rometty begging to have $IBM booted RT @hmeisler $AA and $HPQ basically doubled since getting kicked out of $DJIA…
Jesus Cryptos
20 Aug 14 13:37:36
RT @michaelsantoli: Ginni Rometty begging to have $IBM booted RT @hmeisler $AA and $HPQ basically doubled since getting kicked out of $DJIA…
allgringo
20 Aug 14 13:29:08
RT @michaelsantoli: Ginni Rometty begging to have $IBM booted RT @hmeisler $AA and $HPQ basically doubled since getting kicked out of $DJIA…
Yahoo Finance
20 Aug 14 13:26:42
RT @michaelsantoli: Ginni Rometty begging to have $IBM booted RT @hmeisler $AA and $HPQ basically doubled since getting kicked out of $DJIA…
Michael Santoli
20 Aug 14 13:22:13
Ginni Rometty begging to have $IBM booted RT @hmeisler $AA and $HPQ basically doubled since getting kicked out of $DJIA cc: @michaelsantoli
Bull Ellis
20 Aug 14 13:14:36
Out of $AA, out with 11% gains. Chart is ok, short term outlook negative. Long term play in the future
lounis Matouk
20 Aug 14 13:12:43
RT @hmeisler: $AA and $HPQ basically have doulbed since getting kicked out of the $DJIA cc: @michaelsantoli
Derald Muniz
20 Aug 14 13:11:27
"@hmeisler: $AA and $HPQ basically have doulbed since getting kicked out of the $DJIA cc: @michaelsantoli"
Dave Alexander
20 Aug 14 13:08:15
RT @SconsetCapital: I love this! LOVE!!! :) RT @hmeisler: $AA and $HPQ basically have doulbed since getting kicked out of the $DJIA cc: …
Timothy Connolly CFA
20 Aug 14 13:07:59
I love this! LOVE!!! :) RT @hmeisler: $AA and $HPQ basically have doulbed since getting kicked out of the $DJIA cc: @michaelsantoli
Helene Meisler
20 Aug 14 13:07:27
$AA and $HPQ basically have doulbed since getting kicked out of the $DJIA cc: @michaelsantoli
Wall Street News
20 Aug 14 13:01:05
$AA: Yahoo Finance Contributors Digest 08/07/14: Morning Edition http://t.co/pqKQxgKocZ http://t.co/uNfbd42Rnn
PolgarStocks
20 Aug 14 12:52:04
$UTX Ask http://t.co/7RlaOLE4oU Also See: $AA $SLW $DRYS $KNDI ~
Langan Stocks
20 Aug 14 12:16:17
$UMDD Volume http://t.co/QcoalMlX3P Also See: $AMD $GMCR $PCLN $AA ~
Market Headlines
20 Aug 14 12:01:08
$AA: Google Inc (GOOG), Walgreen Company (WAG), Alcoa Inc (AA) Among Top ... http://t.co/83237Cozpz http://t.co/AnDNVdcxdY
Bulls vs Bears
20 Aug 14 11:01:06
$AA: Automakers' Shift To Aluminum Boosts Alcoa's Outlook http://t.co/nOg2hhKUDA http://t.co/qKRJt4RImC
OTPicks.com
20 Aug 14 10:50:57
http://t.co/QzFp1WC0ss Stock_Tracker: $AA Headlines 10 stocks enjoying the biggest: Sto http://t.co/e94pKWR6gR http://t.co/QzFp1WC0ss
OTPicks.com
20 Aug 14 10:50:56
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Extreme Stocks
20 Aug 14 10:37:58
Stock_Tracker: $AA Headlines 10 stocks enjoying the biggest http://t.co/LeMO7ypNCn
nasdaqfan
20 Aug 14 10:35:25
$TLT Day High http://t.co/FLIcif8Fjb Also See: $KNDI $JD $PPH $AA ~
Jack Trader
20 Aug 14 10:30:16
$AA Alcoa Inc (AA) Option Traders Go Bargain Hunting http://t.co/tvUvRuGcDv
lookn4wins
20 Aug 14 10:21:35
$TSLA Current Price $TSLA Most recent stock chart and technical analysis. $EOX $INTC $AA $XRT $SLW $DSLV http: http://t.co/67TcuhFD8r
aviatelive
20 Aug 14 10:02:09
Alcoa: more cars means more aluminum http://t.co/WHjyNiRXT2 #aviateUS $AA
Companies in News
20 Aug 14 10:01:06
$AA: One Put, One Call Option To Know About for Alcoa http://t.co/r0y6nskqJ9 http://t.co/aojuoEpuNg
TheStreet Alerts
20 Aug 14 10:00:52
Why TheStreet Ratings Teams Says Alcoa $AA Stock Is A 'Buy' http://t.co/z4VuZGuxKt
Stock Forums
20 Aug 14 09:54:13
$TCEL Last Trade http://t.co/nVXc2YCrI4 Also See: $XOP $FCX $SBUX $AA ~
Future Tech Investor
20 Aug 14 09:47:37
$KNDI short squeeze coming. Cup&Handle -$TSLA $F $GM $FB $MU $Z $ZU $AA $BLDP $FSLR $NFLX $SCTY $SPWR $DDD $LOCO $EXAS $JD $FCEL $FOLD $AAPL
PolgarStocks
20 Aug 14 09:45:55
$SVXY Last Price http://t.co/0IUgiMbRiu Also See: $FFIV $UGAZ $AA $VTI ~
Future Tech Investor
20 Aug 14 09:43:37
$KNDI new HOD. Uptrend intact - $TSLA $F $GM $FB $MU $Z $ZU $AA $BLDP $FSLR $NFLX $SCTY $SPWR $DDD $SSYS $LOCO $EXAS $JD $FCEL $FOLD $AAPL
lookn4wins
20 Aug 14 09:24:10
$BLDP 200 Simple Moving Average $BLDP Most recent stock chart and technical analysis. $HD $OPXA $EDZ $AXP $AA http://t.co/FX6wvBN5qF
Stocks in News
20 Aug 14 09:01:05
$AA: Alcoa Inc. Courting Growth and Security at the Same Time http://t.co/F0Rdr2r9Nh http://t.co/vLxZ8FbV6g
Stock Forums
20 Aug 14 08:46:49
$SPXS Bid Size http://t.co/kvUOiJHnha Also See: $FEYE $FSLR $AA $GS ~
Investors Hangout
20 Aug 14 08:41:10
Jake13: $AA Buy or Sell Opinion Click here to find out if http://t.co/vNrJHEyCB5
				
				
By  +Follow October 15, 2013 7:25PM
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