Get Paid for Waiting

 | Nov 07, 2013 | 11:00 AM EST
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Some of the froth has started to come out of the market recently. The highflying biotech sector has been under pressure for the last week or so. On Wednesday, we also saw "priced to perfection" Tesla Motors (TSLA) take an almost 15% pounding after finally disappointing investors. After the bell, Whole Foods (WFM) and IPO rocket ship Noodles & Company (NDLS) both got hit hard after providing shareholders with dissatisfying results.

I think it may be time to increase allocation to some of the sectors that have severely lagged the market in 2013. I have a couple of small positions in these lagging sectors that I intend to increase if we see the further tax-loss selling I highlighted in my Tuesday column toward the end of the year.

Both of these beaten-down equities have had a rough go in 2013 but should rebound in 2014. Both also have high yields that pay an investor to wait around for the inevitable turnaround in their prospects.

Potash (POT): Little has gone right lately for fertilizer makers. Potash prices have fallen more than $100 per ton since the breakup of the potash cartel over in Russia, which has had a substantial impact on earnings prospects. Stocks across the sector have declined precipitously as a result.

However, recently, even worse-than-expected results have had little impact on stock prices in the sector. This tells me these plays have probably bottomed for the moment. Paul Price has made similar comments recently in Columnist Conversations posts. Potash is a low cost producer and should make more than $2 in earnings per share (EPS), even with potash prices at currently low levels.

The long-term secular story still remains in place for fertilizer makers. Tens of millions of people annually continue to move into the middle class in emerging markets. This will be a significant tailwind for agricultural production and demand for fertilizer for the foreseeable future.

In addition, the breakup of the Russian cartel may end up to be a rough negotiating play routinely employed in that region of the world. I don't think it would be a great surprise if the two parties involved were to figure out a way to resolve their dispute sometime in 2014, which would substantially bolster potash prices in the future. In the meantime, Potash pays a 4.5% dividend yield.

CVR Refining (CVRR): After being market leaders in 2012, refiners have had a miserable 2013. Declining crack spreads have hurt margins and the costs to comply with government renewable energy mandates have escalated.

However, lately, the sector has performed better. After reaching parity in the summer, the spreads between WTI and Brent have started to diverge again. CVR Refining has suffered like its brethren in the sector and its last quarterly results were also impacted by a long shutdown at its Coffeyville facility.

The refinery at Coffeyville is back up and running. After falling about 40% from its highs earlier in the year, the shares could rally in 2014 when the negative sentiment on the sector starts to shift. The shares yield over 5% and the stock is priced at around 5x this year's earnings. In addition, CVRR has bounced twice off the $22 level and may be forming some technical support near its current price.

Columnist Conversations

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