Revisiting the theme that price alone is not the true
determinant of a stock's total value is a task worth repeating
from time-to-time. Even more so when investors find themselves
seduced by the temptation of volatile single-digit stocks.
The temptation is easy to understand. After all, $10,000 in
capital buys a lot more shares of an $8 stock than an $80 stock.
Of course, it is this conventional way of thinking that has
plagued so many investors in the past when it comes to
Still, not all single-digit stocks are afflicted with that
condition forever. Many have the potential to graduate to $10 and
beyond. Here are some candidates to make that move in 2013,
though in a couple of examples while $10 may be a real
possibility, how long the stock stays there is up for debate.
Alpha Natural Resources (NYSE:
Like many coal stocks, Alpha Natural spent the bulk of 2012
plunging. With just a few trading days left in the year, the
stock is down 54.5 percent. The primary catalyst behind Alpha
Natural's 2012 woes has been thermal coal demand or lack thereof.
Thermal coal is the coal variety used by electric utilities, but
with natural gas prices depressed, utilities have turned to
cheaper, cleaner gas as an alternative.
Slack thermal coal demand prompted Alpha Natural to announce
significant production reductions
in the third quarter. Investors may remember that Alpha Natural
acquired Massey Energy to increase its exposure to metallurgical
coal, the coal grade used in the the production of steel.
That move has not worked out so well, at least not yet,
because metallurgical coal demand by emerging markets consumers
has waned, forcing prices lower. Weak metallurgical coal demand
is also one reason why
Standard & Poor's recently lowered Alpha
Natural's credit rating
to BB- from B+. That downgrade takes the company deeper into junk
All of this may imply that Alpha Natural is a stock to stay
away from. However, the shares have jumped 29.4 percent in the
past month. Additionally, Alpha Natural is positioned to take
advantage of any significant increase in natural gas prices
because that would force utilities back to thermal coal. Or the
Chinese and Indian economies could rebound enough to jolt
metallurgical coal prices. With a beta of 1.68 and the shares
flirting with $9.30, Alpha Natural could easily hit $10 in the
near-term. Bullish economic data points out of China could carry
the stock even higher.
Caesars Entertainment (NYSE:
Speaking of companies with junk credit ratings whose shares have
recently been in rally mode, there is casino operator Caesars.
This is how bad this stock has been since its February IPO: The
shares have lost 50 percent since then and that is despite a 35.5
percent jump in the past month.
Perhaps more impressive is the fact that Caesars rallied after
Superstorm Sandy punished Atlantic City, New Jersey where the
company operates four casinos. Either way, this stock is on fire
and that is with the investment community knowing
Caesars is carrying over $20 billion in debt that
costs $1.5 billion per year to service
Paying $1.5 billion in interest annually means that until
Caesars can boost its credit rating, an unlikely scenario in the
near- to medium-term, the company is devoting almost double its
current market cap to interest expenses. Fitch ratings even said
Caesars could be a bankruptcy candidate in the future.
The ability of Caesars shares to hit $10 revolves around the
same premise that keeps gamblers coming into casinos: Nothing is
impossible, though the desired outcome may not be highly
probable. Caesars does have one thing in its favor: A massive
short interest. Nearly
17.6 percent of the shares outstanding are sold
meaning it would take nearly three trading weeks for the shorts
Said differently, should Caesars announce any news that is
even remotely decent in early 2013, the ensuing short-covering
could fan the flames of a Caesars move to $10. With over $20
billion in debt, do not bet on a lengthy stay in double-digit
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