WASHINGTON, December 28, 2017: Wall Street’s Best Daily thinks some retail stocks will be compelling bounceback candidates. Their list includes Walmart (WMT) and a perennial winner that’s currently off its game, TJ Maxx (TJX). This site also like homebuilders Pulte (PHM) and Hovnanian (HOV). But my personal short list of speculative bounceback stocks includes the shares of Calumet Specialty Products LP and Allergan Plc., so that’s what this column will be looking at. Hold onto your seats!
As for this columnist, I’d have to put the hanged, drawn and quartered common shares of drug giant Allergan Plc. (AGN) high on my list. My ownership of a considerable number of this company’s high-dividend convertible shares (AGN/PRA) has been a major drag on my largest portfolio this year in a year when most everything else seems to have been a winner.
As our readers know from previous columns, Allergan was doing just fine until it got into headline trouble with its bold but risky move selling patents for its popular Restasis eye treatment to a northern New York Indian tribe as a likely legal way to dodge at least one regulator questioning Restasis’ ongoing patent protection.
But a Texas judge effectively closed the matter (we think) by invalidating Restasis’ patents, allowing the strong possibility of competitive generic biosimilars to be approved and sold in 2018.
This setback, plus other issues, generated fearsome selling in late summer and early autumn in both the common and preferred shares, which are mandatorily convertible to common shares on March 1, 2018.
The selling, while probably justified – sadly for me – has in my opinion at least been disastrously overdone at this point. Both the common and preferred shares have been tax-loss sold to death at this point. Volume has declined to near flatline. So we think the selling is essentially done if not overdone.
Neither AGN nor AGN/PRA will recover significantly during 2017’s last two trading days – today and tomorrow, December 29. But with selling pretty well exhausted in these issues, I do expect some kind of bounce to commence in early January.
For that reason, I continue to hold the preferred shares. But also for this reason, I’m not necessarily recommending this puppy to anyone else, as that could certainly be regarded as self-serving stock touting – something I never do. So if this play interests you in any way, you are definitely traveling at your own risk.
Calumet Specialty Products, LP (CLMT). Short and sweet. A once high-dividend paying regional refiner, Calumet was a hot product up to about 2 years ago when it over-expanded by building the first new refinery in the U.S. since, it seems, the days of the Roman Empire. Built in the Bakken Shale region, the new Calumet refinery was meant to take advantage of the oil fracking gold rush in that reason. Sadly, easier-to-frack formations in West Texas were cheaper and faster to develop, Bakken projects slowed to a crawl, and the new refinery was not a success for Calumet, at least initially.
This left Calumet in disastrously over-leveraged territory to the point where investors feared it might cease to exist. The dividend was eliminated; the stock plunged and nearly died as a result. But a new CEO has shed the refinery and other assets quite ruthlessly, largely repairing CLMT’s balance sheet to the point where it looks viable again. It’s also been getting back to what it’s long been good at: emphasizing the refining of specialty products (lubricants, etc.) from oil with gasoline refining as a sidelight.
As a result of management’s turnaround efforts, Calumet began its return to profitability in FY 2017. Maybe we’ll even see a dividend next year. As in the oil industry on the whole, however, only time will tell. Calumet, like others in the oil patch, is best off when oil prices are stable or increasing moderately. That’s been happening this year, but you have to take one year at a time in the oil patch. That said, current conditions are conducive to bigger profits in 2018, as long as current conditions stay in place.
As a fairly large specialty product refining limited partnership, Calumet and its shares will likely continue to strengthen in a major way during 2018. Perhaps it’s too early to guess as to whether any kind of dividend Calumet will announce. But if that’s the case, interest may come back to this neglected issue, since dividends – preferably big, fat ones – are what usually prompt investors to snap up master limited partnerships.
I’ve made money on Calumet shares before, and traded the shares for a profit earlier this year as a 2016 bounceback candidate. On the other hand, when the shares took a swan dive a couple of years back, I had to eat some red ink when I neglected to scale out of my shares until it was almost too late. Whether we get a repeat of the company’s banner 2017 is anyone’s guess, as the easy money appears to have been made.
Anyhow, CLMT is there. I am tempted, but I need to see what happens to the charts in early 2018. That’s why this one is another spec. Travel here with caution.
*Cartoon by Branco. Reproduced with permission and by arrangement with LegalInsurrection.