Monday December 12, 2011
by George Putnam, editor The Turnaround Letter
At this time of year, we often see artificial selling pressures hat may result in buying opportunities almost regardless of stock fundamentals or market conditions.
These selling pressures come from two sources: tax loss selling and portfolio window dressing. The extreme volatility this year has produced a particularly interesting crop of year-end bounce candidates.
To select these 10 bounce candidates, we focused on the worst performers in the S&P 500 during calendar 2011, adjusted somewhat so that the result was only one stock from each industry group.
Alpha Natural Resources (ANR) produces coal for electric power generation and steel production. Its perceived economic sensitivity hurt as recession fears reared up over the course of the year.
The pressure on the stock was increased by an earnings warning and by concerns about the integration of a large acquisition. After 2011's year-long decline, the stock looks undervalued with attractive cash-flow characteristics.
American International Group (AIG) was at the epicenter of the financial market meltdown and was bailed out by the government. But unlike many other financial institutions, it has yet to pay back its federal borrowings.
After a big year-year bounce last year, the stock peaked at 60 in January and has been dropping ever since.
Bank of America (BAC) has seen almost nothing but negative headlines since it bought Countrywide and Merrill Lynch in 2008. Nonetheless, it still has a powerful retailing banking footprint.
The sentiment has been so negative that even a big investment from Warren Buffett hasn't helped the stock. But sentiment can change rapidly and even a slight lifting of the gloom could cause the stock to pop.
Computer Sciences (CSC) would have had a good year except for five trading days. And it hasn't helped that the SEC has an ongoing investigation into its Nordic and Australian units.
Despite all this, the company's strength in providing solutions to complex technology problems positions it well for the future.
And with the stock trading at its lowest level since 1995, it appears ripe for a rebound. It could also attract the attention of private equity investors.
First Solar (FSLR) is another stock that began the year well and then went into a prolonged slide as investors turned negative on the whole solar sector.
However, with decent results and a largely debt-free balance sheet, FSLR could rebound sharply when the group comes back into favor.
Janus Capital Group (JNS) is an investment management company with a focus on equity mutual funds.
Its specialty is growth stock funds, which are particularly vulnerable to market volatility. When equity markets firm up, the stock should perform well.
MEMC Electronic Materials (WFR) is a leading maker of silicon wafters. The cyclical nature of the business along with a growing exposure to solar kept investors on the edge in 2011. The company has taken on more debt in recent years, adding to shareholder nervousness.
But with the stock approaching a 9-year low, it looks as though most of the fickle shareholders have already abandoned ship, so any upturn could be sharp.
Monster Worldwide (MWW), the global online employment search firm, started 2011 by rallying to a multi-year high only to descend on disappointing revenues and bookings.
Monster definitely felt the effects of subdued business confidence, but its brand is strong and management appears attuned to tweaking the operating model to leverage developing technologies.
Netflix (NFLX) had a fall from grace that was one of the more dramatic declines of an iconic stock in recent memory. Following a rise to $305 in July, the stock collapsed to $69.
Management realized the error of its ways and while the moves it had made tarnished the brand bit, the company still has a strong business franchise.
United States Steel (X) saw a sharp drop-off in demand for steel products during the last recession.
As a result, investors got very nervous as fears of a new recession picked up steam earlier this year. If those fears recede, the stock should rebound smartly.
Learn more about this financial newsletter at George Putnam's The Turnaround Letter.