Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Stocks for Your Watchlist

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

This article is part of our Rising Star Portfolios series.

Building a list of companies you'd like to own but don't yet for one reason or another is a key part of investing. Maybe the price isn't right, maybe you haven't looked into it deeply enough, whatever. Using a watchlist keeps these companies in front of you, so you can invest in them when the time is right.

Three companies that recently came across my radar screen while looking for the next company to add to my Messed-Up Expectations (MUE) portfolio -- which invests in companies that the market is not expecting much from at all -- were Noranda Aluminum Holdings (NYSE: NOR  ) , NRG Energy (NYSE: NRG  ) , and Western Refining (NYSE: WNR  ) .

Noranda Aluminum
While Alcoa (NYSE: AA  ) is a much bigger aluminum company, Noranda focuses in a couple of niche markets, producing foil and stock for containers like pie tins as well as heat exchanger fins. Alcoa's food packaging is focused on cans and bottles, and its construction line focuses on panels for building sides. Regarding Noranda, though, I learned that delays in research can be beneficial.

I was in the middle of looking deeper into Noranda, learning about what it does and how it makes money, when I had to go out of town suddenly for a couple of weeks. After returning, Noranda reported earnings, and I quickly discovered that of the $130 million in trailing 12-month free cash flow the company had made in the previous period, $106 million had been cash settlements received from aluminum price hedging a year earlier. Not really repeatable, so when that's dropped out and the most recent quarter is included, the new TTM FCF amount was $68 million. That changed the priced-in expectations enough to no longer make it attractive at current prices.

Of course, the share price could drop or it could remain the same while FCF increases, in which case I would be interested again, so I'm adding it to my watchlist.

NRG Energy
At current prices, independent electricity producer NRG is actually expected to shrink FCF over the next 10 years. What had appealed to me, however, was its planned expansion of a nuclear power plant it ran in Texas. However, that was essentially nixed shortly after the Fukushima Daiichi disaster. Management decided that the regulatory environment in the U.S. would become much more difficult to work in and pulled all financial support from the development. With this change, I felt that the answer to the question "Am I convinced that this pick has a good chance to beat the market?" was no longer an unequivocal "yes."

I'll keep my eye on the company, however, and follow developments. Business situations change all the time, as NRG illustrates, and it could reach the point where a "yes" answer is the one to give.

Western Refining
Sometimes the best stock to buy is one you already own. Yesterday, I added to the portfolio's position in Western Refining to continue to take advantage of the Brent/WTI crude oil spread. Western Refining uses the cheaper WTI oil, which lowers its costs relative to Valero (NYSE: VLO  ) , the largest independent domestic refiner.

This purchase is made just a few days ahead of its next earnings release date, but that's fine with me. Even if Western Refining disappoints the market, this is a longer-term investment for the portfolio.

Come join me over on the Messed-Up Expectations portfolio discussion board to talk over these and other companies hitting our radars.

This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. Click here to see all of our Rising Star analysts (and their portfolios).

The Motley Fool owns shares of Western Refining. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool analyst Jim Mueller owns shares of Western Refining. He works for the Stock Advisor newsletter service. The Motley Fool's disclosure policy is never messed up.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1527965, ~/Articles/ArticleHandler.aspx, 10/24/2016 12:45:15 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,218.71 73.00 0.40%
S&P 500 2,148.57 7.41 0.35%
NASD 5,299.72 42.31 0.80%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 12:29 PM
NORNQ $0.04 Up +0.01 +23.84%
Noranda Aluminum H… CAPS Rating: **
NRG $11.22 Down -0.30 -2.58%
NRG Energy CAPS Rating: ***
AA $26.87 Down -0.01 -0.04%
Alcoa CAPS Rating: ***
VLO $55.80 Up +0.04 +0.07%
Valero Energy CAPS Rating: ****
WNR $29.90 Down -0.71 -2.32%
Western Refining CAPS Rating: ****