Here’s a look at five of the year’s worst performers so far. I’ll tell you what went wrong, and where I think these stocks are going next.
Rare earth, common problems
Shares of rare-earth miner Molycorp Inc (NYSE:MCP) fell 45% in the first quarter. The astronomic gains of 2009 and early 2010 are long forgotten, and shareholders have lost a stunning 93% of their investment in less than two years.
The company is losing money hand over fist and depends on loans and secondary stock offerings to keep its operations running. Plunging prices for Molycorp’s materials, paired with an ill-timed $1.3 billion acquisition, seem to have doomed the stock.
Molycorp Inc (NYSE:MCP) may return to hypergrowth one day, assuming that the global market for rare earth-powered electronics rebounds. But it has to happen before the company runs out of increasingly desperate cash-raising options. The potential returns could be astronomical, but the risk of going to zero also looms large.
These dynamics make Molycorp Inc (NYSE:MCP) more of a lottery ticket than an investment. Proceed with caution, dear Fool.
Pigs can fly in Cincinnati
Regional telecom Cincinnati Bell Inc. (NYSE:CBB) took a 40.5% steel bath in the first three months, driven by poor earnings and a lack of telecom-like dividend checks.
Unlike many sector peers, Cincinnati Bell Inc. (NYSE:CBB) doesn’t pay a regular dividend. The company has dropped hints that a dividend policy may be in the cards, but investors have yet to see a solid announcement. That’s a huge drag on stocks in this income-friendly industry.
But the company has a few potential tricks up its sleeves. Cincinnati Bell Inc. (NYSE:CBB) owns 69% of data-center operator CyrusOne Inc (NASDAQ:CONE), which it spun out during the first quarter. The wireless division could be sold or spun out for a quick $300 million return. Finally, management is paying down much of its interest-bearing debt these days.
All things considered, fellow Fool Jim Royal sees a strong value in Cincinnati Bell. The risks are outweighed by the potential for a triple in Jim’s eyes, assuming that you can wait two years for all the simmering catalysts to kick in.
This stock may not bounce much in 2013, but long-term investors should be richly rewarded for their patience.