Early in January, it's always prudent to take a long hard look at the worst performing stocks from the previous year.
Although sharp declines are always cause for concern, sometimes the negative catalysts that dragged down shares may dissipate in the year ahead. Other times sentiment becomes too negative. Yet other times, a new catalyst may be forming that could drive an advance.
It's through this kind of prism that pros such as Jim Cramer always examine the worst stocks from the previous year looking for opportunity.
Following are Cramer's comments on the worst performing S&P stocks for 2013. They are Newmont Mining, down 50%, Cliffs Natural Resources, off 32%, Edwards Lifesciences, down 27%, as well as Peabody Energy and Teradata both of 26%.
Cramer said Newmont has three strikes against it. "First, if you want a miner you want one with growth and Newmont's growth is paltry versus RandGold's which is the most successful player left in the industry. Second, owning an individual gold stock has been a nightmare because you don't know if yours is going to go up or blow up from poor execution. Finally, gold itself, after more than a decade of going higher, got really hammered last year and it feels like the bounce will be short lived."
Although Cramer still believes a little gold belongs in every portfolio as a hedge, he doesn't believe shares of Newmont Mining will rally anytime soon. "Better to own a basket of miners if you're so inclined," Cramer said.
Cramer concedes there's every reason to find Cliffs Natural tempting. "As one of North America's leading iron ore producers it seems to be an excellent play on global recovery."
However, Cramer fears that Wall Street will peg the Cliffs Natural stock to the price of iron ore. And according to published reports, supply is expected to increase in 2014 sending prices lower.
"Therefore, I suspect there's more downside ahead," Cramer said. "I'd skep Cliff's entirely.
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Cramer views Edwards Lifesciences as a bet on a medical device that might prove more successful than a popular device made by rival Medtronic. Cramer says the issue here is that the Medtronic device is quite good and if the new device from Edwards doesn't catch on "you're looking at a prescription for another leg down."
However, Cramer isn't entirely bearish. He added that Edwards Lifesciences "is worth doing more research on before making a final judgment."
Peabody Energy is a good company, but it's a play on coal, and Cramer expects coal to remain out of favor 2014. Not only does he expect to see incentives promoting the switch to nat gas he also thinks the government will actively dissuade the use of coal.
"It's no longer just that no new coal power plants will be built. It is now about the aggressive de-commissioning of coal plants. Put simply, coal is a horror story and while Peabody is clearly the best of the bunch, this is the neighborhood from hell."
"Oh my how tempting is Teradata stock with an 8% year over year growth rate domestically and a 13 growth rate in Europe," Cramer said.
But in the case of Teradata, Cramer says resist temptation. "This is a company that is challenged cyclically as its Asian orders are on the decline, and secularly, in that its company's under fire from better competitors that offer lower cost products."
For Cramer those kind of metrics say one thing - that does not compute!
Cramer's conclusion: "It's entirely possible that one of the stocks mentioned above could have a major run. But I believe other stocks elsewhere in the market have far better tailwinds and are therefore better places to put money to work. In the end, that's what really matters. "
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