The Dow Jones Industrial Average closed below 10,000 today for the first time in four years. The sell-off has been particularly brutal among stocks leveraged to commodities and the global growth story, with most names down over 60% since oil peaked in July, and many hitting multi-year lows. This summer’s surge in resources was mainly fueled by the thesis that the ranks of the world’s middle class are swelling in the developing world, and that these newly affluent people will hunger for materials. If you believe that this macro long-term trend remains intact, and that the current financial crisis amounts to little more than a speed bump, then it is a good idea to compile a shopping list of cyclical stocks that could bounce back hard during a broader market turnaround.
There were several indications that today’s intraday lows could mark at least a short-term bottom. The Dow was down over 800 points just before 3:00 when it staged a late-day rally and recouped 450 points of losses. The VIX volatility index peaked at 58 intraday near historical levels before closing at 52.
The U.S. has demonstrated a willingness to do anything necessary to avert disaster, and foreign governments are quickly warming to the concept of taking coordinated monetary action. At least one sector tied to global growth, transaction processing, actually performed fairly well today. Mastercard (MA) finished 4.5% higher (+7.21; $167.41), and Visa (V) only lost 2.6% (-1.46; $55.38).
Dry Bulk Shippers:
These stocks are highly levered to the Baltic Dry Index (BDI) of shipping rates. The BDI topped 11,000 in May and closed below 3,000 today. These companies were making insane profits when rates were high, and now sport trailing twelve-month P/E’s below 3 in many cases. Several companies, including DryShips (DRYS), had the foresight to lock in many of their ships on long-term contracts at higher rates. Many traders believe a reversal in the BDI will be among the first signs of a return of the global growth story.
Conservative: DRYS ($27.25); 52-week range: $23.54 – $131.34; market cap: $1.2 billion; stockholders’ equity: $1.9 billion
Aggressive: TBSI ($10.81); 52-week range: $8.92 – $71.15; market cap: $323 million; stockholders’ equity: $516 million
Speculative: SINO ($3.24); 52-week range: $2.80 – $27.49; market cap: $9.8 million; stockholders’ equity: $9.7 million
Agriculture:
Includes fertilizers, seeds, and equipment. The world will always need more food.
Conservative: ADM ($18.37); 52-week range: $16.55 – $48.95; market cap: $11.8 billion; stockholders’ equity: $13.5 billion
BG ($46.88); 52-week range: $41.00 – $135.00; market cap: $5.7 billion; stockholders’ equity: $9.5 billion
DE ($37.29); 52-week range: $34.00 – $94.89; market cap: $15.9 billion; stockholders’ equity: $7.5 billion
Aggressive: MOS ($37.16), POT ($86.91), MON ($75.48), AGU ($39.39), LNN ($54.82)
Speculative: SEED ($3.77), COIN ($4.21), FEED ($6.26), IPI ($21.87)
ETFs: MOO ($26.66; 52-week range: $25.25 – $66.20) tracks agribusiness equities index
DBA ($25.70; 52-week range: $25.63 – $43.50) tracks soft commodities
Steel:
The steel ETF, SLX, which tracks an index of steel-levered equities, is down 65% from its May 19 high. Industry consolidation could resume once credit eases.
Conservative: X ($59.62), MT ($41.10)
Aggressive: AKS ($18.04), ZEUS ($23.14), NUE ($33.74)
Speculative: AYSI ($1.10), SUTR ($2.42), CPSL ($2.44)
ETF: SLX ($40.54; 52-week range: $35.85 – $114.12) tracks steel equities index
Engineering and Construction:
These infrastructure stocks are being priced as if every contract they’ve signed will be cancelled.
Conservative: SGR ($20.73); 52-week range: $18.52 – $77.30; market cap: $1.7 billion; stockholders’ equity: $1.4 billion; backlog: $16.4 billion, not including nuclear facilities
Aggressive: FLR ($45.62), FWLT ($29.00), JEC ($40.90), MDR ($19.01)
Speculative: WPCS ($3.05); 52-week range: $2.86 – $11.67; market cap: $22 million; stockholders’ equity: $60 million
Coal:
China could work through its pre-Olympic inventory build soon, and U.S. prices have remained firm.
Conservative: ACI ($26.23), BTU ($35.11), CNX ($36.37)
Aggressive: ANR ($38.62), MEE ($26.54), JRCC ($18.26)
Speculative: NCOC ($3.92), ICO ($4.81), CHGY ($0.48)
ETF: KOL ($22.01; 52-week range: $19.90 – $60.30) tracks coal equities index fund
Natural Gas:
These stocks are priced much lower than they were the last time natural gas was $7. Any political progress made on the Pickens Plan will boost these names.
Conservative: CHK ($26.50); 52-week range: $23.41 – $74.00; market cap: $15.4 billion; stockholders’ equity: $10.3 billion
Aggressive: HK ($14.09), GDP ($29.70), GMXR ($32.01)
Speculative: QBC ($1.78), MNLU ($4.50)
ETF: UNG ($30.99; 52-week range: $30.28 – $63.89) tracks natural gas futures
Oil Services:
The last time the OIH was this low ($116.97), oil was near $60/barrel.
Conservative: RIG ($88.38), SLB ($69.50), BHI ($45.07)
Aggressive: DWSN ($32.84), NBR ($19.49), PTEN ($14.83), NOV ($37.02)
Speculative: TGE ($4.30), BOLT ($10.21)
ETF: OIH ($116.97; 52-week range: $105 – $228.75) basket of oil service equities
Metals:
Includes precious and basic metals, and mining equipment. Won’t China and India need this stuff again? Alcoa (AA, $18.11), once thought to be a takeover target, hit a 10-year low today.
Conservative: AA ($18.11), RIO ($14.46)
Aggressive: FCX ($43.71), PCU ($14.83), JOYG ($37.24), BUCY ($34.40)
Speculative: AUY (gold, $6.49), SWC (platinum, $4.35), PAL (palladium, $1.50)
ETFs: XME ($36.40; 52-week range: $31.50 – $96.09) tracks metals and mining equities
GDX ($27.90; 52-week range: $25.30 – $56.87) tracks gold miner equities index
GLD (gold spot), SLV (silver spot)
Industrial Equipment:
Earth moving, cranes, power generation, general capital equipment.
Conservative: CAT ($49.20), KUB ($23.31)
Aggressive: MTW ($12.83), TEX ($23.12)
Speculative: ARTW ($6.00), JST ($19.51), APWR ($5.83)
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