Both younger and older investors enjoy some benefits that their counterparts don’t. Older investors tend to have more money to invest, but they are closer to retirement so they have to be a little bit more conservative about their investments than younger investors. On the contrary, while younger investors tend to have less money to begin with, they have more time to recuperate any losses they may sustain during their investment journey, which allows them to make some riskier decisions. The portfolio I’m suggesting here might be suited for younger investors in their 20s and 30s. The portfolio consists of well-known, established companies with a long history of success that are in the middle of turnaround efforts and can possibly result in great returns when and if their turnaround is successful. This is the second part of my article on the portfolio.
Advanced Micro Devices, Inc. (NYSE:AMD) : Since March of 2012, the company has lost 65% of its market value due to fears that the company was going to go out of business. The share price has stabilized over the last couple weeks and if this company can prove that it is here to stay, the share price can move up tremendously. There is a lot of competitive pressure from other chip makers in addition to the known troubles of the PC industry, but things can definitely get better over a long period of time. After all, PC is not going away anytime soon no matter how popular smart phones or tablets become.
BP plc (ADR) (NYSE:BP) : The company never really recovered from the effects of the Gulf of Mexico accident a couple years ago. Once the court cases conclude, BP pays the bill and finally moves on, things will be interesting for the investors of the company. Before the infamous accident, BP was trading for $60 per share, and it currently trades for about $40 per share, which provides a lot of potential upside for the investors who are willing to be patient in the long term.
IAMGOLD Corporation (USA) (NYSE:IAG) : In the last few years, gold preformed tremendously even though many gold miners have not. This is one of those gold mining companies that has been seeing sharp decline in its share price. Since 2011, IAMGOLD Corporation saw its market value fall by 67% and it trades for a low P/E of 7. This company can easily triple in a few years if the price of gold moves a little bit higher and investors start buying gold miners again.
France Telecom SA (ADR) (NYSE:FTE) : This company has suffered from a slowing EU economy, even though its operations are not limited to Europe. In the last five years, France Telecom lost 70% of its value due to European recession. Sooner or later, the European recession will come to an end, which will help this company rally. The company’s high dividend rate will also help its recovery. Before the European recession, this company was trading for $30 but it trades for $10 today, which means there is a lot of room for share appreciation for patient investors.
This company has suffered from two things, 1) the reckless behavior ofCEO Aubrey Kerr McClendon and 2) the sharp declines in natural gas prices in the US. The CEO will be leaving soon and natural gas prices will improve over time, especially once US companies start exporting it to other countries. This company has lost more than half of its market value in the last few years, and a successful turnaround would be very good for investors.
If you build a high-risk portfolio like this, make sure that it is well diversified so that the risk of any one company killing your portfolio is minimized. Keep in mind that while some of these companies have already made a lot of progress in their efforts of recovery, some are just beginning. Buying companies that are in the middle of a restructuring is a dangerous game and it involves more risk than usual, which explains the potential of high rewards. This is why younger investors that have more time until their retirement should consider a portfolio like this.
Now, since we are building a young investors’ portfolio, we won’t be able to start with a lot of money. Let’s assume that we have about $20,000 to invest and each stock in our portfolio gets roughly $2,000. We are looking at buying 583 shares of Nokia at $3.43, 100 shares of Hewlett Packard at $22.10, 133 shares of BlackBerry at $14.99, 5 shares of Apple at $440, 115 shares of Sony at $17.26, 769 shares of Advanced Micro Devices, Inc. (NYSE:AMD) at $2.60, 48 shares of BP at $41.08, 289 shares of IAMGOLD Corporation at $6.92, 200 France Telecom shares at $10.90, 100 shares of Chesapeake Energy Corporation (NYSE:CHK) at $22.40. I will watch the performance of this portfolio and provide quarterly reports.
Note: This is just an experimental simulation I am running. I am not actually building this portfolio even though I own shares of some of the companies mentioned here.
The article The Turnaround Portfolio for Young Investors (Part II) originally appeared on Fool.com and is written by Jacob Steinberg.
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