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Turnaround Stock Portfolio Weeks #5 and #6: Are You Afraid of Our Losers Yet?

The Turnaround Portfolio is still off to a slow start after its first month, but as most investors know, turnaround projects usually require quite a bit of patience. Considering that,

The Turnaround Portfolio is still off to a slow start after its first month, but as most investors know, turnaround projects usually require quite a bit of patience. Considering that, based on Wednesday’s closing prices, the portfolio of these 10 troubled stocks is still only down 3.10 percent since inception, things could be much worse.

Well…then things got worse.

Weight Watchers International, Inc. (WTW) announced that it was suspending its dividend and issued a negative forecast for 2014. Shares plummeted about 20 percent following the news. So, there’s that. Thursday’s trading action essentially doubled the portfolio’s losses in one fell swoop, largely because of Weight Watchers.

Despite the plunge for WTW, the two components weighing down the portfolio the most continue to be Tower Group International, Ltd. (TWGP) and J.C. Penney Co. (JCP) . Tower Group extended its run into the red, falling an additional 12.35 percent since our last check in, and has fallen over 80 percent since trading in the low $20s earlier in the summer. As for J.C. Penney, which received a nice pop earlier this week due in large part to reiterating its outlook for the quarter, shares are still down almost 25 percent since our Sept. 25 start date.

Aside from those two loss leaders, the portfolio is showing some signs of life. Alcoa (AA) , Quicksilver Resources (KWK) , Cliffs Natural Resources (CLF) and Sprint Corp. (S) are all posting double-digit gains. Alcoa and Sprint did most of their damage over the past two weeks, each up right around 10 percent, while Quicksilver actually gave back over 15 percent during the same period.

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. The last component that still needs to be addressed is the Telecom sector and its representative out of Overland Park, Kansas.

Telecom Sector Pick: Sprint (S)

Traditionally a defensive group, the Telecom sector actually featured a number of prime candidates for the turnaround portfolio. Frontier Communications (FTR) , CenturyLink (CTL) , and a few others come to mind. It should be noted that the Telecom sector has been on a tear over the last year, with the SPDR S&P Telecom ($XTL) up over 13 percent year-to-date and up 23 percent over the last year. The draw, of course, are the tempting dividend yields these companies are famous for. With the Fed’s bond-purchasing program expected to slow in the coming months, it will be interesting to see how investors react to this sector.

Why We Picked Sprint:

While Sprint is the nation’s third largest wireless services carrier, the company’s outlook and viability is somewhat of a question mark. In July, the company received a life preserver from Softbank Corp., after the Japanese telecom giant spent $21.6 billion to acquire a majority stake in Sprint. The deal included $5 billion to shore up the company’s balance sheet. Sprint also acquired Clearwire Communications just a day before the Softbank deal became official.  

The end result was the dropping of the Nextel name—a $36 billion mistake haunting it since 2005—and an aggressive focus on expanding Sprint’s wireless coverage to compete with Verizon Wireless (VZ) and AT&T (T) .

While the game plan sounds good, the actual execution remains to be seen. Expanding its network will be capital intensive, and the company seems to be having problems retaining customer. For the third quarter, the company lost 313,000 subscribers. Analysts were expecting a decline of only 140,000.

On the bright side, the company swung to a profit for Q3, posting net income of $383 million versus a loss of $767 million from the year before. Revenue fell just under a percent to $8.68 billion from $8.76 billion.

As for performance, Sprint has held pretty steady since the start of this little project, up 8.72 percent.

Turnaround Portfolio Performance Check-In:

The portfolio is down 6.08 percent since Sept. 25, with a split right down the middle between losers and winners—with the losers being much more pronounced, obviously.


Past Turnaround Portfolio Check-Ins 

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