Looking back on our 2014 speculative bounce back stocks

Doing the Java Jive. (Credit: Jennie Johnson via Flickr.
Doing the Java Jive. (Credit: Jennie Johnson via Flickr. Creative Commons 2.0)

WASHINGTON, April 21, 2013 – As we explained in a series of columns late in 2013, “Year-end bounce back stocks” are defined as stock investments that, for whatever reason, happen to have tanked badly as the old year comes to a close.

The theory that endorses investing in some of these stocks holds that by investing in a careful selection of them, you can make some quick money after the turn of the year. Surprisingly, if you’re careful and very picky, taking a quick trip in a selection of these bounce back candidate stocks often works. But you have to be careful in the choosing. And not infrequently, you have to be nimble getting in and out at the right time.

So why does this tactic often work? Many stocks that have had an issue or three get unfairly pounded into oblivion near the close of a given year as they become victims of tax-loss selling. In other words, if a given investor needs to cut down on reportable capital gains, he or she will dump a losing stock for the short term in order to use the loss to offset some of those capital gains. It’s perfectly legal and happens all the time.

That said, it sometimes results in tremendous bargains which can give you a quick capital gain in the new year. The following is our list of speculative year-end bounce back stock candidates for 2014. The Maven includes some of his original rationale. And, unlike a lot of stock pickers, he also provides you with a current update, as of COB today, on how the following stocks actually behaved.

Six Speculative Bounce Back Stock Candidates for 2014

The Maven portrayed the following list of spec stocks as an “investing crapshoot.” The stocks in this list had either been stymied or oversold in 2013 due to a bad year and/or the annual, end-of-year tax-loss selling stampede; or, for various reasons, happened to be perched on the edge of potential upside surprises.

Our 2014 spec stocks are listed in no particular order, listings beginning with company name, stock symbol, target price and current dividend yield. After the entry, we’ll reveal what actually happened to these stocks as of COB today.

Two Harbors (TWO). Target Price: $10. Dividend: 11% more or less.

REITs were hammered during the final three quarters of FY 2013 due to fears that a combination of mortgage payoffs and Fed interest rate increases (aka “tapering”) would slowly begin to sink both book value and those extraordinarily high dividend payoffs that had been easy pickings during FY 2012 and FY 2013.

But Two Harbors fared better than most REITs due to its more diversified portfolio of mortgages, both Federally-insured and not, plus the fact that it, like some other REITs, has been moving into the mortgage servicing arena in search of more stable fee income. The company did cut its dividend in the 4th quarter of FY 2013, the fourth quarterly cut in a row. But the rate of yield decline seems to have reached equilibrium and we don’t anticipate further cuts.

Even with this latest dividend cut, TWO is yielding a whopping 11+ percent

It’s a low priced stock and you can buy a lot for notta lotta money. But that also means that even tiny declines can cause heart-stopping drops in the value of the investment. In any event, REITs are primarily a dividend investment rather than a capital gain-style investment. But, that said, if you get the right price and if they stop cutting dividends, you could get a little appreciation on the stock which, combined with the swell dividend, can make for a happy 2014. If it works. Disclosure: If not, the Maven himself will suffer, as he’s already picked up a substantial position in this one.

UPDATE: A 2014 winner for the Maven. He got in for $9.15 per share and got out in late March after the ex-dividend date for $10.30 per share for a 12% profit while also booking .52 per share of dividends, half of which pays out this evening. Wish they were all like this one.

Cliffs Natural Resources (CLF). TP: 27. Div.: 2.5%.

In 2013 we wrote: “Forderly known as Cleveland-Cliffs, this iron ore and coal producer happens also to be a Market Maven nostalgia favorite. That’s because Cliffs, back in the day, used its own fleet of Great Lakes ore carriers (underwhelmingly called “boats” in lake parlance), and offered to the lucky few impoverished college kids who knew about this some pretty swell summer jobs aboard ship.

“Fewer but much larger trips still make that trip today, although a good bit of ore is now for export. Coal, also used in steelmaking, was another lucrative cargo. And bottom line, Cliffs was and is one of the world’s largest miners of iron ore and metallurgical (steelmaking) coal. In fact, this company today also has massive mines in Canada and Australia which is the real story here.

“Obviously the Obama Administration is working overtime to crush the domestic coal industry and the jobs that go along with it. So Cliffs’ coal numbers are down year-over-year which put this stock in the trash compactor in 2013. Ditto numbers for iron ore, as domestic steelmakers continue to struggle due to the still ongoing Great Recession in American heavy industry.

“But Cliffs has cut costs to the bone. Meanwhile, lest we forget, there’s always China. Even though the Chicoms are trying to increase capacity for their own domestic steelmaking activities, they still need to import resources, and more so if their economy decides to pick up again, which it just might do in 2014. And with its extensive domestic iron and international metallurgical coal reserves, Cliffs is well-prepared to assume a role as a a medium to low cost producer of these resources. And that’s the play. If it happens.

“If things start working out in 2014, unbelievable amounts of money could be made by simply owning this stock. In a good-to-great year, this is a stock that can travel upwards of 20-40 points in a heartbeat. The Maven has made good money on this one in the past, although he’s occasionally taken a haircut as well.”

UPDATE: The Maven chickened out on this one and it’s a good thing. The stock traded at around 25 in December 2013, but as of COB today, it closed at 18.46. More problematic, it’s under attack by a firm that owns 5.2% of shares outstanding and is trying to get the company either to divest resources or break itself up. That said, the stock is still a good spec, yields over 3%, and is currently selling for only 50% of its book value. This is a stock that makes breathtaking moves up or down, and could revive later this year if coal and/or iron ore start getting a bid again. The stock remains one of many victims of Obama’s War on Coal, however, and you have to factor this ruinous, self-destructive policy into your consideration of this investment.

Although no longer a bounce back candidate, we’re still keeping an eye on it, seeing if things will change. If you’re considering this beat-up stock for your own portfolio, make sure you don’t have a heart condition. This stock’s upward and downward moves make even the scariest roller coasters in Cedar Point—just down the road from Cleveland Ohio-based Cliffs—seem like child’s play.

GT Advanced Technologies (GTAT). TP: $10.50. Div.: 0.

Last year we wrote: “Earlier this month, we devoted an entire article to this interesting tech spec. Short story: this is still a fairly speculative tech stock whose primary business is the manufacture of synthetic sapphires, a widely useful industrial product with a particularly important use in glass coatings or in sapphire glass itself. Sapphires only take a backseat to diamonds in hardness, and that’s the reason why synthetic sapphire, produced in quantity, is important in the manufacture of super-hard glass or glass coatings.

“Which is exactly what Apple is looking for in its still-being-finalized iPhone 6, likely to go on the market in late 2014. Apple is so keen on this technology that it’s struck a long-term supply agreement with GTAT and is even helping the little company build a new factory in Arizona to supply synthetic sapphire in quantity.

“Although Apple’s alleged iPhone agreement with China Mobile keeps slipping. But sales are still brisk enough without that outlet to make it likely that next year’s iPhone iteration with its alleged sapphire coated and possibly larger screen, could pull GTAT’s boat along for the ride. Hence, the stock’s bounce back potential.

“GTAT’s price recently dropped after a somewhat poorly-received secondary offering of stock. The Maven got on board for this one and plans to hold these moderately volatile shares until (fingers crossed) Apple saves his bacon by ordering a whole bunch of GTAT’s sapphire stuff.”

UPDATE: Victory! Sort of. Well, it really was a big win, but read on. Having bought in to the GTAT secondary in early December to the tune of 300 shares @ 8.65 per share, the Maven bravely crunched many a TUM tablet and was amply rewarded for his efforts, cashing out in February for $11.06, a whopping 27% gain.

The bad news? The stock backed and filled at this point before galloping upward once again to a new high of $19.44 late last month. Selling here would have booked the Maven about a 125% gain, but it’s hard for anyone to pick the actually top. (A few gains like this and you can start fantasizing about that mansion in the Bahamas.) Sigh.

Stock closed today at 16.78, still very impressive for a company nobody ever heard of. We’re watching it even now as tech is taking a hammering in the market. The Apple connection is still very real, and the stock could make another move. But right now, hands off. A terrific spec, though, and one of the reasons why we do this.

Banco Santander SA (SAN). TP: $9.50-$10.00. Div.: 9.4%.

Last year, we wrote: “For better or worse, we tend to stick with domestic stocks. But we’ve been in and out of this giant, internationally active Spanish bank. Right, Spain is and will likely remain one of Europe’s economic “sick men,” along with the other rather insultingly nicknamed “PIIGS” (Portugal, Ireland, Italy, Greece and Spain).

“But Santander, whose reach is wide and broad and extends far beyond the borders of Spain, is a well-managed institution as far as we can see, and appears, even now, to be solvent and even quite profitable. Add to this a huge dividend—usually paid to American holders in additional shares of stock to minimize the tax issue—and only a point or two of improvement from its current ridiculously low price (PE=13.02)—and this oversold major bank could be well worth a stay until sometime in 2014. The Maven already owns shares of SAN.”

UPDATE: The Maven still owns SAN, 409 shares at this point, for an average purchase price of 8.76. The reason for the odd number of shares is that SAN gives U.S. residents the opportunity to take that fat 9%+ dividend in stock, thus avoiding payment of the Spanish dividend tax which protects your yield. The Maven will be getting another stock dividend a bit later this month, likely taking the share count up to about 118-120 depending on fractional shares. We’ve decided to make this one a long term hold, as we think SAN could double in 5 years or less, assuming Putin doesn’t invade Spain and/or that Al Qaeda doesn’t decide to re-establish the Caliphate in Madrid. Meanwhile, we continue to collect that fat dividend in the form of stock. The stock, BTW, closed today at 9.82, putting us up 12.12%. This will vary in the coming months, but the general trajectory should be a slow climb up as Santander is one of Europe’s strongest banks.

Unilever (UL). TP: $44. Div.: 3.5%.

We wrote: “…this Europe-based consumer products giant has been the butt of snide jokes lately for its weird, often tasteless, but quite relentless promotion of its AXE line of products. But the products are successful, and the company itself is so ubiquitous that every reader of this column more than likely has one or two Unilever products somewhere in the house. The stock has been stuck in the market’s equivalent of the La Brea Tar Pits for quite some time. But its decent dividend is tempting, its stability is fairly good, and the possibility for a decent bounce back gain in 2014 is an appealing prospect, so why not?

“UL has warmed a bit lately, so we’d only pick some up on a dip. Boring, but it could do the job.”

UPDATE: We refused to chase this one, preferring to buy our stock on decent dips. So we never got in. That said, the stock could have been bought for circa $40 per share in December 2013, and it closed at $44.21 today, which would have given a December buyer about a 10% gain. Plus a swell 3.25%-ish dividend While-U-Wait. Really not bad for a mature, old-line consumer products giant. But its largest gains may be nearly over for the year.

iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (JO). TP:? Div.: 0.

We wrote: “What’s this you say? An entity whose name is tough to parse? No target price. No dividend. Indeed that’s the case with this sort-of ETF that rocks and rolls with the price of coffee futures. Hence the symbol for this virtual cuppa Joe, “JO.”

“An ETN is somewhat like an ETF except that it’s not. Let’s borrow a definition from Michael Iachini of Charles Schwab, the Maven’s long-time brokerage house (an acknowledgment, not a recommendation, BTW):

“‘Exchange-traded notes (ETNs) are different [from ETFs]. Instead of being an independent pool of securities, an ETN is a bond issued by a financial institution. That company promises to pay ETN holders the return on some index over a certain period of time and return the principal of the investment at maturity. However, if something happens to that company (such as bankruptcy) and it’s unable to make good on its promise to pay, ETN holders could be left with a worthless investment (just like anyone else who had lent the company money).’

“In other words, to a lay person, an ETN feels like an ETF and trades like an ETF, but it’s actually a kind of debt instrument, in this case a debt instrument or instruments that track(s) the price of coffee futures.

“Short case: coffee futures, due to a substantial harvest of Arabica beans during the current season have dropped those beans close to the generally much-lower price of lower-quality Robusta beans which—in case you didn’t notice—were added in sneaky quantities to better and more popular coffee blends to stem last year’s massive coffee price increases.

“With supplies of both types of beans now roughly in balance, Arabica sales at these lower prices are likely to increase sharply as roasters move to restore their blends back toward their original Arabica wonderfulness. Hence, JO, which tracks this action. The Maven is already in this one on the basis of one of his investment services’ recommendations, but the position is already down and could go lower to fill in a chart gap before the bounce we’re looking for. If you want to play, you may get a better price, but this one is iffy and this is our own first experience with it, so travel with care. Or just watch it this time around.”

UPDATE: Mixed bag. We traded in and out of this puppy three times and lost about $150 all told. Our problem here was precision timing or lack thereof. Many people actually made tons of money on this one during the same time period.

But the volatility of JO is breathtaking, and if you can’t watch it carefully for each and every day you’re in it, you had better not be in it.

The argument still pertains, the ETN can still be traded, but we’re unlikely to touch it any more. Too hot to handle. We’re not even going to bother giving you price quotes as they could be changing again now, even though markets are closed. It’s that unpredictable.

But you can make double digit gains if you have the time and the guts. In his professional trading days, the Maven saw many a fortune made and lost within 24 hours of straight commodity trading handled by the house specialists in that action. JO reminds him of this, even some 30 years after the fact. Which is why the Maven never became a professional commodities trader.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Positions mentioned above describe this author’s own investment ideas and decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk. Caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

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