The 20 members of Real Money's Stressed Out watch list have made enormous strides over the past month and a half -- primarily off renewed confidence in low-dollar stocks, which has been bolstered by recovering oil and commodity markets.
Investors in the 20 stocks would have booked profits of more than $44 per $100 invested as of Tuesday morning, based on the equal-weighted trading levels since the index's Jan. 26 launch.
Metals and mining company Freeport-McMoRan (FCX) has so far been leading the group, with shares up more than 101% over the period. The recovery is largely a result of copper rebounding 14% from a mid-January lows to $222 per active futures contracts Tuesday morning, based on Bloomberg pricing data. (Meanwhile crude prices have jumped 40% from their January trough to more than $37 a barrel.)
"Metal and mining yields have helped the overall junk-bond market with a tightening of 376 basis points just since mid-February," Real Money's Ben Cross wrote in a column last week, highlighting the rebound in Freeport's debt trading in secondary markets. "FCX has been the largest contributor, with both the company's stock and bonds improving by 60% for the month." (Brazilian metals and mining giant Vale (VALE) claimed the watch list's silver medal as of Tuesday morning, up 86% since late January.)
Third and fourth on the list are steel producers AK Steel (AKS) and TimkenSteel (TMST), which have seen shares pulled down along with another list component U.S. Steel (X) by an inflow of cheaper imports, low metal prices and the disappearance of many once-reliable oil and gas customers. But the trend -- which has forced many steelmaker to idle their mills -- is showing signs of relief amid rising prices and the Justice Department's recent decision to impose tariffs on Chinese imports. (AK Steel and TimkenSteel shares are so far up 82% and 78%, respectively, in the six-week period while U.S. Steel shares have increased by 70%.)
Tidewater (TDW) ranked fifth in the index as of Tuesday, with shares of the New Orleans-based oil giant up 81% since late January, driven primarily by rising crude prices and most recently a World Bank decision to allow the company to recoup $27 million of a $46 million judgement by the International Centre for Settlement of Investment Disputes. The complaint follows the 2009 seizure of 11 Tidewater vessels off Venezuela's coast amid the country's push for industry nationalization.
The general performance of the 20 stocks on the list also reflects rising investor sentiment in cheap stocks, which have largely been ignored in 2016 as investors have grown even wary of equities with high dividend payouts, according to Stocks Under $10 portfolio manager David Peltier.
"Someone flipped a switch on Feb. 11," Peltier said Tuesday in an email. "No one wanted to touch stocks, even with solid dividend yields north of 5%. Oil was falling toward $25 a barrel, no interest rate hikes were expected until 2017 and bearish investment sentiment was at March 2009 crisis levels. All of the sudden, people just snapped out of it and reversed course. It started with some short-covering, but traders then started pouring into low-dollar stocks -- namely energy and materials names -- like the January Effect was to begin six weeks late this year."
For more on Real Money's 20 distressed companies to watch: