Take The Bull By The Horns With Value Stock Opportunities

AKS: AK Steel rporation logo
AKS
AK Steel rporation

Submitted by George Putnam, III as part of our contributors program.

Take The Bull By The Horns With Value Stock Opportunities

Most investors remember the severity of the 2009 market nosedive: The Dow’s final closing price on March 9, 2009 was just 6,547.05, and the S&P 500 dropped to just 676.53. Ever the contrarian, I commented back in April 2009, “[T]his may be a very good time to buy both goods and stocks. Many vendors of a wide range of merchandise are offering big discounts in hopes of generating sales. And many stocks are trading at extremely low valuations.”

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Looking back now with six years of hindsight under my belt, I recently took a look at some of the stocks that have significantly lagged over the six-year period since the March 9, 2009 low point. The stock market, as measured by the S&P 500, has risen more than 200% since that date, but a number of interesting stocks have gone nowhere since then. In fact, the four stock picks discussed below currently trade below their levels of six years ago. You can learn more about five additional value stock, bull market laggards in my distressed investing newsletter.

By the way, I did this same exercise last year on the fifth anniversary of the market bottom. While the average return of the nine stocks I looked at then is currently below that of the S&P over the last year, it was dragged down late in 2014 by some of the energy-related names on the list. Most of the stocks on last year’s list outperformed the broad market for at least part of the year, some of them by significant amounts.

AK Steel (AKS) is a manufacturer of value-added steel products, many of which go to the auto industry. Collapsing oil prices in the second half of 2014 raised macro economic concerns that also brought down steel prices, and the stock fell nearly 67% from its August 2014 high. But iron ore prices have also fallen sharply, which should help AK.

Annaly Capital Management (NLY) invests in agency mortgage-backed securities as well as other commercial and residential investments. As a real estate investment trust, the company passes through most of its income to shareholders, hence the large dividend. Management is making a transition to more commercial mortgages and has expanded the duration horizon (longer-term bonds) while reducing hedging. The stock fell sharply in 2013, but has shown signs of turning around since then.

Dean Foods (DF) is not just a leading dairy processor, it really dominates its industry after acquiring many competitors. However, integration issues, a heavy debt load, excess industry capacity and periodically high commodities prices have hurt the stock over the last eight years. A new CEO took over in 2012 who shook up management and instituted plant closings and aggressive cost cutting. Revenue grew in the latest quarter, and the company reported its first profit in four quarters.

Earthlink Holdings (ELNK), a provider of communications and IT services to commercial and retail customers, has struggled to find its niche in the internet era. A new CEO took over in early 2014, and his team appears to be making progress in turning operations around. The stock’s trajectory turned up about a year ago, and it could have a lot further to go.