Investors in the S&P 500 (INDEX: ^GSPC) have to be pleased about the index's strong performance so far in 2013, with gains of about 13% marking the benchmark's best performance this millennium. But as a broadly diversified index, the S&P 500 has its share of losers as well as winners, and so far this year, the blame for the losing contingent of S&P stocks falls squarely on the shoulders of commodities-related companies. Let's take a close look at the three stocks in the S&P 500 that have lost at least a third of their value so far in 2013, and find out whether they have a realistic chance at recovering some of their lost ground during the remainder of the year.
Sinking like steel
The worst performer so far this year is Cliffs Natural Resources (NYSE: CLF), which plunged 57% in the first six months of 2013. The producer of iron ore and metallurgical coal has suffered from the big drop in demand for steel production, as key users like China and other emerging markets have seen their economies slow and the pace of their construction and infrastructure projects decelerate recently. Recent news of summer layoffs and the need for it to temporarily idle its Wabush Scully mine in Labrador because of forest fires are just the latest in a series of shutdowns and other measures that Cliffs has taken to try to stem the bleeding that required the company to slash its dividend by more than 75% earlier this year.
Cold like coal
Similar trends pushed coal producer Peabody Energy (NYSE: BTU) down 45%. Coal producers have faced a number of challenges lately. Low natural-gas prices have made coal less desirable as a fuel for power production and other bulk needs, and an adverse regulatory environment in the U.S. has pushed most coal producers to turn to the export markets as their best source of potential demand. Yet as China's economy has slowed, Peabody in particular reaps less benefit from its strategically located reserves in Western Australia. Unless natural gas recovers all of its losses and makes coal more attractive, Peabody could continue to see pressure.
Finally, Newmont Mining (NYSE: NEM) has fallen 34% in 2013. The explanation is pretty simple: gold bullion prices have dropped by nearly that amount, as the SPDR Gold Trust (NYSEMKT: GLD) is down more than 26% so far this year.
A substantial part of gold demand has come from investors who are skeptical that the efforts of the Federal Reserve and other central banks will produce the intended economic growth without creating inflation and jeopardizing the viability of fiat currencies. Yet as economic conditions do in fact improve in the U.S. and the Fed starts to contemplate pulling back on its dramatic interventions, gold investors fear that rising interest rates and less systemic danger could make gold look a lot less attractive.
Can these stocks recover?
Of these three stocks, I'd give Newmont the best prospects for a recovery in the future. Newmont doesn't need a full economic recovery to start moving higher again; it only needs investors to recognize the value of gold and other precious metals after their huge declines. Moreover, weakness among Newmont's rivals could give it strategic opportunities to pick up lucrative mine assets on the cheap, producing better long-term prospects. Given the continued headwinds for steel and coal, the prospects for gold look the best out of these three areas.
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