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Don’t Use These Materials to Build Your Retirement Portfolio Photo credit: Flickr/Peter Craven Photo credit: Flickr/Appalachian Voices

Dont Use These Materials to Build Your Retirement Portfolio

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Don’t Use These Materials to Build Your Retirement Portfolio

Photo credit: Flickr/Peter Craven Photo credit: Flickr/Appalachian Voices

Material companies provide the building

blocks of our economy.

But most material stocks aren’t the right materials

to use to build your retirement portfolio.

That’s why I wouldn’t use the following three

companies to build your retirement portfolio.

Alcoa

• Pioneered the aluminum industry 125 years ago.

• Now a global leader in lightweight metals engineering and manufacturing.

NYSE: AA

Photo credit: Tesla Motors’ Flickr

Alcoa

Positives:

• Transitioning portfolio to grow its value-add business while aggressively reshaping its commodity business.

• Strong first-quarter led by record after-tax income in Engineered Products and Solutions.

• Global Rolled Products profitability tripled sequentially.

Alcoa

Positives (cont.):

• Upstream segments improved performance for 10th straight quarter.

• Net debt-to-capital ratio now down to 33%.• Cash position up to $655 million.

Alcoa

Negatives:

• Aluminum prices down 8% year-over-year.• Strong first-quarter performance offset by

continued charges due to capacity reductions at smelters and rolling mills.

• Company has now reduced its operating capacity by 28% since 2007.

Alcoa

Negatives (cont.):

• 42% of Alcoa’s revenue still tied to commodity prices.

• Net debt outstanding of $7.1 billion as of the end of the first quarter.

• Dividend yield is only 0.91%.

Bottom line on Alcoa

Still too much debt and exposure to commodity prices. Low dividend isn’t appealing for a retirement account.

Walter Energy

• A leading “pure-play” metallurgical coal producer for the steel industry.

NYSE: WLT

Photo credit: Walter Energy

Walter Energy

Positives:

• Cash costs improved by 9.7% since last year’s first quarter.

• Meanwhile, production volume increase by 13.3% over that same timeframe.

• Liquidity now stands at $676 million.

Walter Energy

Negatives:

• According to data from Bloomberg Walter Energy many need a 52% jump in EBITDA just to maintain its credit agreements.

• Without that boost liquidity could shrink by $177 million.

Walter Energy

Negatives (cont.):

• Total debt-to-EBITDA surged to 20.3 times from just 2.8 times in the first quarter of 2011.

• An 82% drop in EBITA and negative cash flow from operations is behind the rise.

• Unsecured debt trading at distressed levels.

Walter Energy

Negatives (cont.):

• Investors have sold 57.3% of shares short as of the end of last month.

• Current dividend rate is just 0.68% and might not be sustainable.

Bottom line on Walter Energy

The unsettling debt picture, ultra high short

interest and weak dividend are all reasons

why Walter Energy isn’t a stock to use to build your

retirement portfolio.

Cliffs Natural Resources

• A major global iron ore producer and a significant producer of high- and low-volatile metallurgical coal.

NYSE: CLF

Photo credit: Flickr/Brood_wich

Cliffs Natural Resources

Positives:

• Liquidity up 32% over the past year as SG&A costs and capital spending have both been slashed.

• Debt-to-EBITDA ratio down to 2.5 times as debt-to-total capital is now 35%.

Cliffs Natural Resources

Negatives:

• Year-over-year decreases in revenue per ton of 19% for iron ore and 13% for metallurgical coal.

• Total liquidity actually fell last quarter from $2.1 billion to $1.9 billion.

• Meanwhile, leverage profile jumped from 30% to 35%.

Cliffs Natural Resources

Negatives (cont.):

• 37.3% of the float was sold short as of the end of last month.

• While the current dividend yield is a compelling 3.65% it was much higher, but Cliffs slashed it by 76% last year.

Bottom line on Cliffs Natural Resources

Weakening debt profile, uncertain dividend and weaker commodity prices aren’t the building blocks

of a solid portfolio candidate.

Photo credit: Flickr/Peter Craven

Better building blocks

3 “materials” you want to see in a great retirement stock:

1. Strong, contracted cash flows.2. A visible pipeline of growth projects.3. A history of growing payouts to investors.

Retirement stocks that are so good that the IRS is daring

you to buy them.

ThatThat’s why you need to check out our special free report detailing: