Dont Use These Materials to Build Your Retirement Portfolio


Published on

Alcoa, Walter Energy and Cliffs Natural Resources aren’t the best materials to be using to build your retirement portfolio.

Published in: Business, Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • and
  • And
  • Photo credit: Motley Fool
  • and
  • Data from Bloomberg BITs
  • Data from Bloomberg BITS
  • Photo credit: Motley Fool
  • and
  • Dont Use These Materials to Build Your Retirement Portfolio

    1. 1. Don’t Use These Materials to Build Your Retirement Portfolio Photo credit: Flickr/Peter Craven Photo credit: Flickr/Appalachian Voices
    2. 2. Material companies provide the building blocks of our economy.
    3. 3. But most material stocks aren’t the right materials to use to build your retirement portfolio.
    4. 4. That’s why I wouldn’t use the following three companies to build your retirement portfolio.
    5. 5. Alcoa • Pioneered the aluminum industry 125 years ago. • Now a global leader in lightweight metals engineering and manufacturing. NYSE: AA Photo credit: Tesla Motors’ Flickr
    6. 6. Alcoa Positives: • Transitioning portfolio to grow its value-add business while aggressively reshaping its commodity business. • Strong first-quarter led by record after-tax income in Engineered Products and Solutions. • Global Rolled Products profitability tripled sequentially.
    7. 7. Alcoa Positives (cont.): • Upstream segments improved performance for 10th straight quarter. • Net debt-to-capital ratio now down to 33%. • Cash position up to $655 million.
    8. 8. Alcoa Negatives: • Aluminum prices down 8% year-over-year. • Strong first-quarter performance offset by continued charges due to capacity reductions at smelters and rolling mills. • Company has now reduced its operating capacity by 28% since 2007.
    9. 9. Alcoa Negatives (cont.): • 42% of Alcoa’s revenue still tied to commodity prices. • Net debt outstanding of $7.1 billion as of the end of the first quarter. • Dividend yield is only 0.91%.
    10. 10. Bottom line on Alcoa Still too much debt and exposure to commodity prices. Low dividend isn’t appealing for a retirement account.
    11. 11. Walter Energy • A leading “pure- play” metallurgical coal producer for the steel industry. NYSE: WLT Photo credit: Walter Energy
    12. 12. Walter Energy Positives: • Cash costs improved by 9.7% since last year’s first quarter. • Meanwhile, production volume increase by 13.3% over that same timeframe. • Liquidity now stands at $676 million.
    13. 13. Walter Energy Negatives: • According to data from Bloomberg Walter Energy many need a 52% jump in EBITDA just to maintain its credit agreements. • Without that boost liquidity could shrink by $177 million.
    14. 14. Walter Energy Negatives (cont.): • Total debt-to-EBITDA surged to 20.3 times from just 2.8 times in the first quarter of 2011. • An 82% drop in EBITA and negative cash flow from operations is behind the rise. • Unsecured debt trading at distressed levels.
    15. 15. Walter Energy Negatives (cont.): • Investors have sold 57.3% of shares short as of the end of last month. • Current dividend rate is just 0.68% and might not be sustainable.
    16. 16. Bottom line on Walter Energy The unsettling debt picture, ultra high short interest and weak dividend are all reasons why Walter Energy isn’t a stock to use to build your retirement portfolio.
    17. 17. Cliffs Natural Resources • A major global iron ore producer and a significant producer of high- and low-volatile metallurgical coal. NYSE: CLF Photo credit: Flickr/Brood_wich
    18. 18. Cliffs Natural Resources Positives: • Liquidity up 32% over the past year as SG&A costs and capital spending have both been slashed. • Debt-to-EBITDA ratio down to 2.5 times as debt- to-total capital is now 35%.
    19. 19. Cliffs Natural Resources Negatives: • Year-over-year decreases in revenue per ton of 19% for iron ore and 13% for metallurgical coal. • Total liquidity actually fell last quarter from $2.1 billion to $1.9 billion. • Meanwhile, leverage profile jumped from 30% to 35%.
    20. 20. Cliffs Natural Resources Negatives (cont.): • 37.3% of the float was sold short as of the end of last month. • While the current dividend yield is a compelling 3.65% it was much higher, but Cliffs slashed it by 76% last year.
    21. 21. Bottom line on Cliffs Natural Resources Weakening debt profile, uncertain dividend and weaker commodity prices aren’t the building blocks of a solid portfolio candidate. Photo credit: Flickr/Peter Craven
    22. 22. Better building blocks 3 “materials” you want to see in a great retirement stock: 1. Strong, contracted cash flows. 2. A visible pipeline of growth projects. 3. A history of growing payouts to investors.
    23. 23. Retirement stocks that are so good that the IRS is daring you to buy them. That That’s why you need to check out our special free report detailing: