Investing

3 2015 Train Wreck Stocks That Could Recover Big in 2016

Freeport-McMoRan

Freeport-McMoRan Inc. (NYSE: FCX) had a horrible 2015, and for good reason. It used to be an industry leader, but this combination miner/driller/fracker cannot even pull out a gross profit in the current environment, as commodity prices have collapsed across the board. It is bleeding cash fast, and if commodity markets stay this way for the next two or three years, the company could go bankrupt.

Making the situation even worse is its enormous debt pile of over $20 billion, which at Freeport’s current market cap of $8 billion makes it leveraged 2.5 to 1.

However, the good side of the story is that the largest chunks of its debt are not due until 2018 and beyond, giving some time for commodity markets to recover before the company is drowned in debt payments. Together with its frantic efforts to cut expenses and conserve cash, this gives it at least some breathing room. Freeport still has the capital necessary to take advantage of any upturn in commodity prices, and it likely will rocket higher when the reversal finally comes, as long as it comes before 2018.

Freeport has recovered from crises like this before, particularly after the 2008 oil collapse when the stock was right back at its highs in two years’ time for a more than 600% gain.

Tuesday Morning

Tuesday Morning Corp. (NASDAQ: TUES) has had a perpetual bad case of the Mondays in 2015. Like Fossil, its highs came at the very beginning of the year, and it has been on a downward ski slope ever since. The company is not in any kind of financial distress though. With no debt, and able to eke out an annual profit with the help of its signature holiday fourth quarter, it’s in OK shape.

Tuesday Morning’s business model is also consistent with its financial statements. It sells excess supply of generally high-priced kitchen merchandise at a discount that it acquires from retailers who are overstocked due to cancellations, bankruptcies or general excess capacity. One would expect slim margins and a big holiday quarter with that kind of model, which is exactly what we see. So why the spectacular fall in 2015? Expectations were just too high and the company could not meet them.

But that doesn’t mean it isn’t slowly succeeding. With a company like Tuesday Morning, once it reaches a certain top line threshold, quarterly profits will be more consistent and it won’t have to rely strictly on the holiday season. It could be growing faster, but given the 70% fall since 2015 began, it looks like a good buy on the cheap for 2016.

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