Investors have some great opportunities for finding alpha in today’s market. The easy days of the market may be over and actively managed funds will prove their worth in the coming years in my view. Here are some stocks that have certainly fallen out of vogue and could outperform peers going forward.
1. Cloud Peak Energy (NYSE:CLD)
Cloud Peak Energy Inc. is a U.S. coal producer in the Powder River Basin. It sits on approximately 1 billion tons of reserves. Cloud Peak Energy is headquartered in Gillette, Wyoming. The company is down over 95% from its 2014 highs. The stock trades at an incredible 0.03 price to book value. In fact, the stock has fallen so far that it now trades below the 1.00 threshold required by NYSE. This means it will have to move back up or be de-listed and forced into OTC trading. It’s hard to find anything more hated than this stock at the moment.
Frankly, ruling out some outside risk of fraud, the only reason why this stock should rightfully be trading so low is the possibility of bankruptcy. The main concern is the $346 million note due in 2021. The company has already saved up 109 million cash in preparation for this. The company is making about 20m in operating cash flow. This number will likely improve in the next year for two reasons: The executive team has notified investors that excessive flooding of some mines has reduced sales for the last quarter. In addition, the company has implemented a drastic cost cutting program which included a change of office location. The company also has a 70M A/R securitization program available.
Despite the extreme pessimism on the stock, Cloud Peak should be able to meet its financial obligations and has plenty of options available to it.
Below is the EIA global projections on energy demand by type:
Although many media outlets have claimed coal is dead and buried by natural gas energy, it’s still a major source of power. What’s more, when you zoom out and look at the global demand outlook for coal, it paints a much better picture for the industry. U.S. coal producers derive much of their sales from exports, though myopic, inward focused Americans tend to only acknowledge domestic trends. The fact is, coal still maintains a high portion of the overall energy market.
2. Solitario Zinc Corp (XPL)
Solitario Zinc Corp., an exploration stage company, engages in the acquisition, exploration, and development of zinc properties in Peru and Alaska. Its principal mineral property assets are the 39% interest in the Florida Canyon zinc project located in Peru; and the 50% interest in the Lik zinc deposit located in Alaska.
The company has a market cap of 14 million, 12.65 million cash on hand and no debt. Chris Herald has expressed his commitment to continuing operations without diluting shareholders investments. Partners are carrying much of the financial burden of the projects. It also trades at a low 0.05 price to book value.
Zinc warehouse stocks have been depleted in recent years, and might provide upward pressure in Zinc prices going forward. Especially with plenty of talk about infrastructure spending.
3. Sims Metal Management (SMSMY)
Sims Metal Management Limited buys, processes, and sells ferrous and non-ferrous recycled metals. The company operates through five segments: North America Metals, Investment in SA Recycling, Australia/New Zealand, Metals, Europe Metals, and Global E-Recycling. According to Allied Market Research, the global e-recycling market is projected to reach $50 billion in the next few years.
This stock is one of the very few options available to investors who want to take advantage of this growing trend of e-waste. The company trades at a very low 0.90 price to book value and is currently profitable.
Viewpoints presented by Enclave Research are for educational purposes only. The information should not be construed as investment advice. Always consult a licensed investment professional before making investment decisions.
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