Newmont, Apple head casualty list are on the Casualty List
It was a rip-roaring first quarter, with U.S. stocks up about 10 percent, but a few hundred stocks missed the party.
Some of those laggards look good to me — Apple Inc. and Newmont Mining Corp., for example. I have put them on my casualty list, a quarterly list of stocks that have gotten into trouble but that I believe will bounce back.
Today's casualty list is the 40th I've compiled since the series began in 2000. Twelve-month results can be calculated for 36 of the casualty Lists, and the average one-year return (including reinvested dividends) has been 22 percent, compared with 7.4 percent for the Standard & Poor's 500 Index.
Not all of my casualty lists have done well. Of the 36 lists, 26 were profitable and 23 beat the S&P 500.
The list from a year ago made money but only 7.4 percent versus 13.5 percent for the S&P. Alliant Techsystems Inc. (ATK) and Smithfield Foods Inc. (SFD) did well, up more than 17 percent and 21 percent respectively. But Hewlett-Packard Co. managed only a 4.7 percent gain, and Newmont Mining Corp. (NEM), which I owned for clients at the time, fell 14 percent.
Bear in mind that the performance of my column recommendations is theoretical and doesn't reflect transaction costs and taxes. It shouldn't be confused with the performance of portfolios I run for clients. And past performance doesn't predict future returns.
Now for a new crop of banged-up stocks that I believe have comeback potential.
For the second quarter in a row, I recommend Apple Inc. (AAPL). I put it on the Casualty List after it dropped almost 20 percent in price in the fourth quarter of 2012. It fell an additional 16 percent in the first quarter.
Yes, Steve Jobs is gone. Yes, Apple faces increased competition in tablets and the usual frenzied competition in smartphones. Yes, earnings growth shows signs of slowing from the red-hot 43 percent annual pace of the past five years.
Granting all that, it seems to me like a real opportunity to buy an extremely profitable, debt-free company at 10 times earnings.
I'm also going to bring back Newmont Mining Corp. (NEM), which was on the list a year ago. It fell 10 percent last quarter, as investors eschewed gold investments to move into stocks that may do well in a peppier economy.
I don't own Newmont stocks, but I think it will perform well in the coming 12 months. Never mind the mystique of gold, and set aside for a moment the role of gold as a quasi-currency at a time when central banks are easing. Just look at Newmont as if it were a straight industrial stock.
Newmont offers a 4 percent dividend yield. It posted a pretax profit margin of 31 percent last year. It earned a return on equity of better than 13 percent in 2012, and is expected to show higher profits this year ($4.17 a share versus $3.63 last year). And it sells for 11 times earnings.
A big loser last quarter was Cirrus Logic Inc. (CRUS) of Austin, which fell 21 percent. A leading maker of audio chips, Cirrus was smacked down mostly because close to half of its sales are to Apple. As noted earlier, Apple's ridiculously high growth rate is slowing.
In Cirrus, you have a debt-free company with a 45 percent earnings growth rate the past five years, selling for less than 10 times earnings. That is a rarity, and to my way of thinking, a bargain.
An even bigger loser was Cliffs Natural Resources Inc. (CLF), the Cleveland, Ohio-based iron ore producer. Cliffs is often viewed as a China play, because close to a quarter of its output goes to Asia, mostly China.
Cliffs is an extraordinarily volatile stock. It was up 157 percent in 2003 and up 110 percent in 2007. It was down 49 percent in 2008 and down 50 percent in this year's first quarter. I have owned it for clients on and off in the past, with mixed results.
New iron ore supply is being developed in the Great Lakes region, leading some analysts to estimate that the price of iron ore will drop to about $110 per metric ton from the recent level of about $137. Given that outlook, only three of 24 analysts who follow Cliffs recommend it now.
I think they are too pessimistic on the price. And in any case, the bad news is now baked into Cliffs stock price, which is at a four-year low. The stock, which topped $100 a share in 2008, languishes at about $19. In my judgment, the price is simply too low.
John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Big plays cost Steelers defense in 43-19 preseason loss at Bills
- Walk-off single moves Pennsylvania team into LLWS title game
- Shale gas violations down as DEP steps up inspections
- Strong-armed outfielder Garcia growing into all-around threat
- Pirates notebook: Hurdle’s faith in Polanco pays off
- QB Vick hits ground running in debut
- Shaler man’s effort restores glory to flag display at Millvale post office
- MLB notebook: Dodgers voice Scully set to end 67-year run in 2016
- Frye: Summer’s end offers space for fishing
- Shaler man charged with homicide, abuse of corpse in McKeesport woman’s death
- Architecture: Pittsburgh history in 10 houses