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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. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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Results for AA
m hanif sahil
28 Mar 15 11:02:28
In$aan K Ji$m Ka $aá $ey Khuá$urat Hi$$a (DIL) He Aur Agr Ya Hi $aaf Na Ho To, Chamakta Chehra Ki$i Kaam Ka Nahi HAZRT ALI (r z) By Akhtyar
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Penny Stockington
28 Mar 15 10:49:27
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Games forever
28 Mar 15 10:29:35
$MON $AA $RNF Basic Materials http://t.co/l1hQodwuOa
Stock Dawgzz
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Ms SuShi
28 Mar 15 09:55:19
RT @StockNewsWires: $TRVN $AA: Investors Are Watching: Peregrine Pharmaceuticals (NASDAQ ...: http://t.co/o3uL38aWRJ
Trading Alpha
28 Mar 15 09:54:37
$SPY, $AAPL, $AA, $AMZN, $APA, $ADSK, $CSX, $EOG, $XLF, $FE, $JCP, $YELP Entries and Levels: https://t.co/L2A7ASCiTU
Stockaholics
28 Mar 15 09:54:25
Our Stock Tips Have Gained Over 230% Within 2 Days! Huge News: http://t.co/FW1zCkmOE6 $AA $BRSS $SHOO
OptionsGod
28 Mar 15 09:54:23
I have been completely wrong about $AA. I had opinions about it and should have traded only charts.#Reminder
Forex Update
28 Mar 15 08:52:53
RT @BergenCapital: Barron's: Mark Roberts of Off Wall Street believes Crown Holdings cld be taken out for $90 per share. $CCK $AA $BLL $BUD
Nest Egg
28 Mar 15 08:49:42
RT @BergenCapital: Barron's: Mark Roberts of Off Wall Street believes Crown Holdings cld be taken out for $90 per share. $CCK $AA $BLL $BUD
Mike Bergen
28 Mar 15 08:47:11
Barron's: Mark Roberts of Off Wall Street believes Crown Holdings cld be taken out for $90 per share. $CCK $AA $BLL $BUD
FinSentS SP500
28 Mar 15 08:19:42
$AA:US Zacks Reiterates "Hold" Rating for Alcoa (AA) #ALCOA INC http://t.co/4eeNw2ZCZI #SP500
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NASDAQ
28 Mar 15 08:11:05
$AA - Ford's Aluminum F-150 Gets a $259 Million Boost From Uncle Sam http://t.co/6HK24QMmy8
Stocks News&Markets
28 Mar 15 08:11:05
$AA - Ford's Aluminum F-150 Gets a $259 Million Boost From Uncle Sam http://t.co/cex9ljxt0M
Maggie Smith
28 Mar 15 08:11:03
$AA - Ford's Aluminum F-150 Gets a $259 Million Boost From Uncle Sam http://t.co/toMkY1I9az
Stockaholics
28 Mar 15 06:26:34
Our Stock Tips Have Gained Over 230% In Less Than 24 Hours! Huge News: http://t.co/FW1zCkmOE6 $AA $BRSS $SHOO
ZOZO
28 Mar 15 06:18:16
Some possible bounce plays will watch for setups $NKTR $AA $HPQ $SNDK RSI 30 scan http://t.co/B3C1NzLZqG …
Sleek Money
28 Mar 15 05:35:17
Morningstar Assigns “BB+” Credit Rating to Alcoa $AA http://t.co/DCcxOj0VIH
Ophir Gottlieb
28 Mar 15 04:17:13
Largest Metals and Mining Cash from Operations 1. $FCX 2. $AA 3. $X Full Chart: http://t.co/RzCM9VgXTj
finsents
28 Mar 15 04:15:53
$AA:US Zacks Reiterates "Hold" Rating for Alcoa (AA) #ALCOA INC http://t.co/iGsLrz6hqb #DJ30
finsents
28 Mar 15 04:14:38
$AA:US Zacks Reiterates "Hold" Rating for Alcoa (AA) #ALCOA INC http://t.co/Dk0PQYnlrO #SP500
StockenheimerSchmidt
28 Mar 15 01:04:40
$RCGP tripled in value within 2 days as of yesterdays high! high! Big News: http://t.co/RWkbY02YnU $AA $BRSS $SHOO
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FinSentS SP500
28 Mar 15 00:12:37
$AA:US Zacks Reiterates "Hold" Rating for Alcoa (AA) #ALCOA INC http://t.co/wjk6G8exts #SP500
HokieZ28
27 Mar 15 20:05:41
$AA looking for a bounce around 12.35 based on the weekly chart http://t.co/vgSH1Duc2d
Clayton R.
27 Mar 15 18:15:08
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WLST.com
27 Mar 15 18:06:24
Stocks likely to drift as investors await Fed, earnings | 4-Traders $AA #Stocks #wlst http://t.co/PhtXSvX7wz http://t.co/94QY4CNDf3
4-traders.com
27 Mar 15 18:06:09
#Stocks likely to drift as investors await Fed, earnings http://t.co/fovlSA94Ro $AA
Briefing.com
27 Mar 15 17:11:06
April #earnings conference calls/webcasts http://t.co/COZ6ropxfd $MON $KMX $MU $AA $BBBY $JNJ $JPM $WFC $INTC $SNDK $C
Capital Market Labs
27 Mar 15 17:06:01
Largest Metals and Mining Assets 1. $FCX 2. $AA 3. $NEM Full Chart: http://t.co/vG0pty9EyX https://t.co/VPsYRMKq5h
US Banking News
27 Mar 15 16:59:40
Zacks Reiterates “Hold” Rating for Alcoa $AA http://t.co/BN6DbiO5m2
Ticker Report
27 Mar 15 16:56:31
Zacks Reiterates “Hold” Rating for Alcoa $AA http://t.co/tLRyOnKKil
Richard Hargrave
27 Mar 15 16:56:19
WEEKLY WRAP UP, $NYAD, $NYMO, $NYSI, $AA, $FSLR, $QQQ, $TLT, $RSX, $JNK, $USO, $EIRL, $IWM, $SPY, $ETC $ETC $ETC. http://t.co/cEGVqX7Ffc
Capital Market Labs
27 Mar 15 16:01:27
Largest Metals and Mining Revenue 1. $AA 2. $FCX 3. $NUE Full Chart: http://t.co/0MiaS7y1Dg https://t.co/x98qiYd3dx
WKRB News
27 Mar 15 15:46:17
Alcoa’s Hold Rating Reaffirmed at Zacks $AA http://t.co/Lpn5HKeXeD
StockNewsWires
27 Mar 15 15:43:02
$AA: Alcoa's Hold Rating Reaffirmed at Zacks (AA): http://t.co/4OQQtx1M4D
US Banking News
27 Mar 15 15:12:33
Analysts’ Ratings Reiterations for March, 27th $AA, ADT, AGCO, ARRS, AXL, BBRY, BBY, BP, BXP, CI http://t.co/iGpazPM2Av
Ticker Report
27 Mar 15 15:11:31
Analysts’ Ratings Reiterations for March, 27th $AA, ADT, AGCO, ARRS, AXL, BBRY, BBY, BP, BXP, CI http://t.co/B67QP7Ktl8
US Consumer News
27 Mar 15 15:05:25
Alcoa's hold rating reiterated at Zacks. $17.00 PT. http://t.co/HsxSzUdKTK $AA #AA
BreakingStocksNews
27 Mar 15 15:05:02
$AA $BBRY: Analysts' Ratings Reiterations for March, 27th (AA, ADT, AGCO ...: http://t.co/hY0j2ZQZgA
Analyst Ratings
27 Mar 15 14:58:57
Alcoa's hold rating reiterated at Zacks. $17.00 PT. http://t.co/UnaXqRJuYA $AA #AA
Capital Market Labs
27 Mar 15 13:58:44
Largest Metals and Mining Assets 1. $FCX 2. $AA 3. $NEM Full Chart: http://t.co/FaoLZ8CtyI https://t.co/x98qiYd3dx
Trading Alpha
27 Mar 15 13:30:53
$AA having a hard time finding a bottom http://t.co/dE6nGRNH3t
JoaquimAgustiCoderch
27 Mar 15 13:09:57
Alcoa loan marks restart of criticized U.S. clean energy program http://t.co/ArsQdpuFy7 $AA
StockenheimerSchmidt
27 Mar 15 11:56:47
$RCGP Has More Than Tripled In Value In The Past 2 Days! Big News: http://t.co/RWkbXZLnwm $AA $BRSS $SHOO
Mark Trader
27 Mar 15 10:59:40
http://t.co/U0VrKn1h21 has the most reliable picks in the market. The move fast and never fail. $AA $RDN $RF $AVP $CX $ABX $ECA
Venky Srinivasan
27 Mar 15 10:19:03
"@chessNwine: NEW POST: Three Confirmed Tops Staying Weak http://t.co/HqpFxRZ15m $AA $CAT $DIA $IBM $SPY"
Chess
27 Mar 15 10:02:20
RT @TommmyF: @chessNwine I've been short $AA and $CAT for quite a while look at $TSLA too, broken through support on a descending wedge...h…
				
				
By  +Follow October 15, 2013 7:25PM
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