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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
Stock Wire
28 Jan 15 13:46:17
Short Interest of Alcoa Inc Increases by 7.7% $AA http://t.co/Gl3xJRHxi1
Wall Street
28 Jan 15 13:44:21
http://t.co/iQWRYqnOQl....Top penny stocks, NYSE, and NASDAQ trades from the stock market today. +296% last week. $AA $KO $BSX $AVNR
Grant Dossetto
28 Jan 15 13:36:26
$FB massaging numbers by classifying expenses as "non-GAAP." Actual income equal to Q4 2013. For bulls cheering number don't look at $AA.
Langan Stocks
28 Jan 15 12:56:19
$IMSC Financials Updated Wednesday, January 28, 2015 3:03:24 PM $AA $PII $GOOG $XIV http://t.co/GDgGGPo1Gt
James P Worthy
28 Jan 15 12:01:12
$AA MIT president named to Alcoa's board http://t.co/e71ffXC5GF
Mark Trader
28 Jan 15 11:56:38
http://t.co/vJ93JPRWBF has the most reliable picks in the market. The move fast and never fail. $AA $RDN $RF $AVP $CX $ABX $ECA
Sherilyn Balazs
28 Jan 15 11:30:31
TRADE WELL http://t.co/o6PqlxZaOF $F $GE $T $BAC $VZ $C $AA $JPM $KO $PFE $GOOG $EBAY $FB $TWTR http://t.co/IlJJD3VTDe
IH News Desk
28 Jan 15 11:09:07
$DUST Stock Price Updated Wednesday, January 28, 2015 1:11:24 PM $GFI $MINE $IBM $AA http://t.co/6qrsg00Umd
28 Jan 15 11:00:01
Our Penny Stock Alert On $QLTS Has Gained 34.62% In The Past 2 Days! Special Update: http://t.co/MNFk4FhSe1 $AA $BRSS $SHOO
Langan Stocks
28 Jan 15 10:53:35
$AA Filings Updated Wednesday, January 28, 2015 1:03:26 PM $GDXJ $FEYE $SVXY $XLF http://t.co/QyxtmzsIb1
28 Jan 15 10:00:45
$AA Reviews Updated Wednesday, January 28, 2015 12:07:29 PM $AOS $MU $BX $PCLN http://t.co/ejQT5DoS0H
Leonel Álvarez
28 Jan 15 09:37:01
$AA +3.69% $CIG +45.43% $INTC +5.12% $XLU +15.16% $S +6.39% $F +15.30% $RSX -39.83% $JCP -32.39%
Investors Hangout
28 Jan 15 09:36:49
DennyT: AA Headlines $AA $XLU $SWKS $BBRY $XLY Barchart http://t.co/vAsGqId8Dx
Investors Hangout
28 Jan 15 09:36:47
DennyT: AA Headlines $AA $XLU $SWKS $BBRY $XLY Barchart http://t.co/bya4GsfrSF
28 Jan 15 09:19:46
AA Headlines $AA $XLU $SWKS $BBRY $XLY Barchart Opinion,Current Price,Low,Company News,On Watch Stock Quote ht http://t.co/j4VLn5cihm
28 Jan 15 09:07:29
@PaulJSingh $AA aluminum at 5.5 yr supply low, & chart
28 Jan 15 08:50:24
$AA back in play after $BA trounced.
28 Jan 15 08:38:00
Penny Stock Secret
28 Jan 15 08:33:22
This Man Turned $100 Into Over $10,000 In Just 30 Days! Proof Here http://t.co/SVqoMlijqL .. $AA $BRSS $SHOO
Day Trade Numbers
28 Jan 15 08:25:16
$AA in range of support and resistance zone between 16.02 and 16.05 http://t.co/qFE60hc0Vx
28 Jan 15 08:09:50
$AA nhod
28 Jan 15 07:59:15
$SLV News Updated Wednesday, January 28, 2015 10:07:26 AM $AA $TSLA $PXYN $EBAY http://t.co/w1ZhaMecR2
28 Jan 15 07:59:07
$XLU News Updated Wednesday, January 28, 2015 10:07:26 AM $TQQQ $TKMR $PG $AA http://t.co/eQ8yBWQsNs
28 Jan 15 07:47:08
$AA not in yet, ill wait for it, aluminum supply at 5.5yr low
Investors Hangout
28 Jan 15 07:45:15
danrocks: $AA Starting to get interesting $UVXY $PBR $TQQQ http://t.co/B93v2ms2ev
Investors Hangout
28 Jan 15 07:45:14
danrocks: $AA Starting to get interesting $UVXY $PBR $TQQQ http://t.co/JmgjKHT5ZV
Fastener News Desk
28 Jan 15 07:15:02
Alcoa Elects L. Rafael Reif to Board of Directors @Alcoa http://t.co/MR9TkN4hKU #Alcoa #aluminum $AA
Stock Rocket
28 Jan 15 07:07:39
Our Penny Stock Alert On $QLTS Has Gained 34.62% In The Past 2 Days! Special Update: http://t.co/SK1yaqFkM1 $AA $BRSS $SHOO
28 Jan 15 07:04:38
$AA Starting to get interesting $UVXY $PBR $TQQQ $BB.TO $SMH http://t.co/BdqlzYeiVD
Rosner Stocks
28 Jan 15 06:58:37
$NEM Stock Price Updated Wednesday, January 28, 2015 08:59:25 AM $AA $QLD $UNH $SH http://t.co/guibjPfYh2
Langan Stocks
28 Jan 15 06:49:45
$TSLA Investor Opinions Updated Wednesday, January 28, 2015 09:03:24 AM $MRK $AA $UVXY $MDT http://t.co/6Y0rojXHDw
Langan Stocks
28 Jan 15 05:49:12
$XLP Stock Price Updated Wednesday, January 28, 2015 08:03:22 AM $AA $FNMA $IYT $OIH http://t.co/bcSAxzrXZm
28 Jan 15 05:21:33
$AA 16R as Aluminum Gains as Global Stockpiles Touch 5 1/2-Year Low http://t.co/aQG41MrgA1
Rosner Stocks
28 Jan 15 04:56:11
$X Filings Updated Wednesday, January 28, 2015 06:59:27 AM $JNK $FXI $SIRI $AA http://t.co/3crV1u6QvW
28 Jan 15 04:00:07
Dave Neville
28 Jan 15 03:59:06
Alcoa: A Textbook Example That Contrarian Investment Strategies Can Be Hugely Profitable http://t.co/MnDbMJOBwq $AA
28 Jan 15 01:38:08
RT @ICTBizJournal: Now flying: American Airlines' first #Dreamliner. http://t.co/RAQWgEK2o0 $BA $AA
Stock Signaling
28 Jan 15 01:31:15
Basic Materials Sector: Upgrades: $TMST $VLO $HUN $OLN $GORO $KRA $IO $STO $FMC $VALE $PE $ALJ $AEM $AA $SYT http://t.co/S9oPUZ8PN3 #trading
IH News Desk
28 Jan 15 00:56:17
$BEBE Filings Updated Wednesday, January 28, 2015 03:11:21 AM $AA $PXYN $CSTE $CMG http://t.co/kIpFJamtRQ
28 Jan 15 00:52:17
$NEM Stock Message Board Updated Wednesday, January 28, 2015 03:07:24 AM $OIH $RSX $QLD $AA http://t.co/VSrSayaXJT
Stock Rocket
28 Jan 15 00:14:35
Our Penny Stock Alert On $QLTS Has Gained 34.62% In The Past 2 Days! Special Update: http://t.co/SK1yaqFkM1 $AA $BRSS $SHOO
28 Jan 15 00:11:34
RT @StockSignaling: Upgraded Stocks Active After Hours: $AAPL $LULU $TRP $CALM $AMAT $AA $GORO $VALE $CHK $BAC $AEO $PAGP $PGH $KGC $SONC h…
27 Jan 15 23:51:13
$NSC News Updated Wednesday, January 28, 2015 02:07:21 AM $AA $PFE $GE $RIC http://t.co/elp7tUHlXw
Stock Wire
27 Jan 15 23:18:42
Alcoa Inc Witness Large Outflow of Money $AA http://t.co/FRftLIiaoM
27 Jan 15 21:48:11
$VTI Filings Updated Wednesday, January 28, 2015 00:07:22 AM $BX $CLF $KO $AA http://t.co/WntCgBdlfk
27 Jan 15 20:07:51
Our Penny Stock Alert On $QLTS Has Gained 34.62% In The Past 2 Days! Special Update: http://t.co/MNFk4FhSe1 $AA $BRSS $SHOO
Gavin Martinsson
27 Jan 15 19:06:01
Buy $AA then “@MarketWatch: ‘Boring’ stocks generate better returns, study says: http://t.co/0xRSxtxaVl http://t.co/rDdzVo742a”
Rosner Stocks
27 Jan 15 18:46:33
$AA Financials Updated Tuesday, January 27, 2015 8:59:26 PM $INTC $TQQQ $MU $INTC http://t.co/Dm5f1ulcAQ
Paul Medica
27 Jan 15 18:42:39
I can't WAIT for the market to open tomorrow! Goooo $AAPL $AA and everything else I'm long
Langan Stocks
27 Jan 15 18:39:17
$AA Company Info Updated Tuesday, January 27, 2015 9:03:25 PM $CSCO $UUP $WYNN $MCD http://t.co/zzchgMnd0J
By  +Follow October 15, 2013 7:25PM



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