Three of the Best Cheap Stocks to Buy Now

Stocks underperform the market for many reasons. For these three stocks the major reason has been the cyclical nature of their business and the resulting oversupply in their industries.

As conditions improve, the following stocks should rise to reflect the underlying value of the assets, and reward investors who take a contrarian stance now.

Cliffs Natural Resources Inc. (NYSE: CLF) is one if the stocks in the index that trades at a discount to its asset value. This company provides iron ore pellets to the steel industry as well as metallurgical coal. The shares have been hammered as declining demand has led to increased supplies around the globe and ore prices have fallen sharply.

The company has cuts its dividend and raised capital though an equity offering to shore up the balance sheet and provide operating capital in a tough environment.

The remainder of 2013 could be tough as there is still excess ore supply in China and the global economy is still very weak. However, 2014 could well see a sharp recovery in ore demand, prices and bottom line profits for this company.

The stock trades at just 60% of its book value so the recovery potential for the share price next year is enormous.

The weak economy has also hurt shares of U.S. Steel Corp. (NYSE: X), one of the world's largest integrated steel producers. The company has seen declining sales and lowered margins as demand has fallen across all lines of business. The market for its tubular steel products has been hit hardest as demand from oil drillers has all but disappeared.

As with Cliffs, the picture doesn't begin to improve much until 2014, but with the stock trading at just 79% of book value shareholders could be well rewarded for being patient.

Alcoa Inc. (NYSE: AA) is flirting with being breakeven for the year so far but the company has been struggling and the shares are lagging the stock market badly. Although global demand for aluminum is starting to pick up and is expected to grow by 7% this year there is still excess capacity that will keep a lid on pricing and margins.

The company is working to improve the bottom line profitability by closing unneeded or less productive plants. Continued strength in sheet aluminum from the auto and construction industries should also help the company to grow the top and bottom lines.

As with our other two selections, 2014 looks much better than 2013 but the stock has strong recovery potential. With the shares trading at 70% of book value there is enough upside to justify investment by long-term patient investors.

For more undervalued stocks to buy now, check out Stocks to Buy: Huge Growth for a Bargain Price

CEO Envy

The Cult of the CEO is not a new order. It is, and has been, the religion of American business, which is all well and good when businesses are small or even medium sized.

But when businesses become behemoth corporations, especially in the case of too-big-to-fail banks, it makes sense to separate the CEO and chairman of the board jobs.

That rarely happens. It's almost always the CEO, not the chairman, who not only runs the company, but runs the chairman and the board of directors he's supposed to answer to.

It's a cult because the CEO usually hand picks his board of directors. If he's powerful enough, or clever enough, the CEO offers friends seats on his company's board. Directors are voted on by shareholders, who almost always rubber stamp choices based on what they believe is a group decision made at the board level.

The board of directors, headed by the chairman of the board, is supposed to pick the company's CEO and oversee the business of the company as it is managed by the CEO and the executives the CEO enlists to help him run the show.

Consolidating Power Corrupts

A powerful CEO, especially one who makes the company tons of profits and raises its share price, often vies for the chairman of the board gig to consolidate and aggregate his power, and he usually gets it.

Or, in the case of a merger or the buyout of another company, to make the marriage friendly, roles are usually negotiated before a deal is consummated.

That's how Jamie Dimon got his job as chairman of Chase. He negotiated it before he sold Bank One to Chase in July 2004, where he was then-CEO of the nation's fifth largest bank.

Upon the sale, Dimon became president and chief operating officer (COO) of JPM. A year later, he was named CEO, and just another year later he was named chairman of the board.

What's wrong with the CEO getting to hand-pick the directors of the company he's being paid a lot of money to run and then having them vote him to be their chairman?

There's no accountability. And we've seen what happens when financial institutions have little accountability.

Ask Yourself the Tough Questions

How is Jamie Dimon, the chairman of the board, effectively going to judge Jamie Dimon the CEO, who answers to the board?

How is Jamie Dimon, as chairman of the board, going to make sure that the board he runs has an effective succession plan to replace Jamie Dimon the CEO (who doesn't want to ever give up his job as the most powerful banker in America), when he fails or needs to be replaced for any other reason?

How is Jamie Dimon, as chairman of the board, going to manage the suspect legal and ethical questions that the CEO (Jamie Dimon) is responsible for saddling the company with?

What ethical and litigation questions? They're there in the litigation section of company's latest quarterly filing, all 18 single-spaced pages of them.

How is Jamie Dimon, as chairman of the board, not responsible for demoting the CEO, who prides himself in his risk management skills, for taking full responsibility for the billions of dollars in losses the bank suffered when the CEO's top lieutenants blew a bunch of hedge trades in the suspiciously hidden London office?

How did the CEO not get fired for lying to the board of directors about the extent of the losses, which he only told them about because other traders in London were gloating over harpooning Chase's so-called London Whale?

How can a power hungry cult figure run a bank with 256,000 employees and $2.4 trillion in assets, threaten to quit the bank if the non-binding vote (non-binding meaning the shareholder vote meant nothing and imposed no legal requirement to actually split the two top jobs) called for him to resign one of his two positions?

He threatened to leave in order to frighten institutional shareholders (who would likely lose money if the stock fell as the result of the leader of the bank left) into voting against the resolution.

It worked. As noted, only 32.2% of shareholders votes were for the resolution this year.

Last year, the same resolution garnered 40% "yes" votes to split the two jobs. That vote took place immediately on the heels of the London Whale news, which was played down by the chairman and CEO before the real truth was made public.

There are no checks and balances when the CEO is the chairman and controls the board.

There are only captured and beholden boards and non-binding resolutions, and more schemes to make more profits to keep the crown on the head of the King of the Cult.

And that makes JPM less secure in the long run than more secure.

Related Articles and News:

• Money Morning:
  The Great Rotation Makes Stocks a Generational Buy
• Money Morning:
  The Next Bank Meltdown Won't Be an "Accident"
• Money Morning:
  What You Absolutely Need to Know About "Their Paper Money"
• Money Morning:
  What Everyone Absolutely Needs to Know About Money

The Yellow Metal's Fall from Grace

Before 2013, the reliance upon metals as a value play during volatile trading periods has become almost a mantra. Such commodities are usually regarded as barometers for broader market moves, although the precipitous fall in pricing over the past month has called that position into question.

That fall has been considerable.

SPDR Gold Shares (NYSEArca: GLD), the most widely held gold exchange traded fund (ETF), has fallen 15.3% since April 1. Meanwhile, the equivalent for silver - the iShares Silver Trust (NYSEArca: SLV) - is down 21%. ETFS Physical Platinum Shares (NYSEArca: PPLT), the most popular platinum ETF, is the best performing of the three, but it's still down 8.8% since April 1.

Normally, gold is regarded as the primary refuge when markets move south, with silver regarded as a distant second. Both silver and platinum are also regarded as indicators of market improvement (along with copper, a commodity I have long regarded as an "acquired taste" largely dependent these days upon Chinese industrial performance).

What has been happening recently, however, is different. GLD and SLV have declined far more than the overall market has risen. In other words, a cursory view would immediately show that what is happening is way more than the commonly perceived negative side of the "flight to security."

That is, if gold (and to a lesser extent silver) are seen only as a refuge when things so sour, the reverse move of the market up should cause interest in the metal to decline.

The current slide, however, is well beyond the rise in market prices. As of Monday,  the S&P had risen 6.7% since April 1, less than half the fall in GLD and only a third of SLV.

With the much announced sales of gold holdings by investors like George Soros and Warren Buffett, the largest slide in some three decades has put the metal's position as a further market barometer in doubt.

At the same time, the price of crude oil has become a more accurate reflection of where markets are moving.

Why Oil's the Better Market Indicator Today

As of Monday, West Texas Intermediate (WTI), the NYMEX benchmark futures contract crude rate, has declined less than 1% since April 1, but has risen 7.7% over the past month, better than the 5.6% improvement in the S&P.

Yet this is not translating into a similar result for Brent, the London-based benchmark comprising the other primary crude oil standards worldwide. There, the price has declined 6.6% since April 1, although rising 3.5% for the most recent month.

Now the focus between these two has fallen upon the "spread" or  the difference in price. In every trading session since mid-August 2010, Brent has been priced higher than WTI. Both of the benchmarks have lower sulfur content than some 85% of the oil traded globally on a daily basis while WTI is a slightly better grade than Brent.

Nonetheless, Brent has been trading at a premium to WTI.

One reason has been the glut of volume at Cushing, Okla. (the primary pipeline location in the U.S. and the place where NYMEX sets its WTI daily price). Another is the usage of Brent as a yardstick for more actual oil sales internationally than WTI.

The surplus at Cushing is now being reduced due to a reverse flow on an existing pipeline to Gulf Coast area refineries and the prospects moving forward from new transport networks. Meanwhile, Brent is experiencing added competition from new sour (i.e., higher sulfur content) crude benchmarks rates in determining trading prices.

When combined with additional American domestic oil coming on line, the spread is narrowing. As of Monday, it stands at 8.1% of the WTI price (the better way of measuring the actual spread's impact on the U.S. market). It was discounted almost 23% less than three months ago.

This contraction of the spread will have some interesting benefits for energy traders moving forward and we will discuss these in an upcoming article. But it is also related to the matter we are considering today.

As that spread narrows, WTI becomes a more ready reflection of actual global oil prices. And as the premium returns to New York traded oil, we will also acquire a more ready indicator of crude's rising position as a store of market value.

There are a range of interesting outcomes for the energy investor from this development. While the average investor is not about to begin trading in oil futures, there are several ETFs that would accomplish the same objective.

Using select ETFs to target individual company shares will also result in increased trading leverage.

I will have much more to say about this once the revised oil position settles.

Related Articles and News:

• Money Morning:
  This Dangerous "New" Energy Crisis is Crippling the Middle East
• Money Morning:
  The Market for Clean Energy Investments Continues to Move East
• Money Morning:
  The "Hybrid" Approach is a Great New Opportunity for Energy Investors
• Money Morning:
  Why I'm So Bullish About Natural Gas

The reveal comes in anticipation of the Electronic Entertainment Expo, or E3, a mammoth annual conference in which the world's best and brightest tech companies show off their latest in computers, video games, and related products. 

Notable reveals at past E3's include: Sony Corp.'s (NYSE ADR: SNE) PlayStation and its following iterations, Nintendo Co. Ltd.'s (NYSE ADR: NTDOY) Nintendo 64, Gamecube, and Wii consoles, Microsoft's original Xbox and Xbox 360, and a litany of legendary games such as Resident Evil, Final Fantasy VII, Bioshock, and Assassin's Creed.

This year's E3 takes place June 11-13 and is one of the most-anticipated yet.

Along with Microsoft, Sony intends to unveil its new console, and thus, the nerd-drool inducing "console wars" are upon us.  

But the new products aren't just for gamers. In fact, as Tuesday's reveal proved, gaming technology continues to improve opportunities for a wide range of consumers.

According to Wedbush's Michael Pachter for Yahoo! Finance, "The real focus of this next generation is on multimedia." 

We now know the Xbox One aims to be the pinnacle of multimedia; an all-in-one home entertainment system. 

The cloud-powered console hooks into all the devices in your living room and allows you to transition from TV to music to Internet to movies seamlessly by voice command.

Pachter predicts consoles like the Xbox One will become Internet television receivers, and that signals will eventually be able come over the internet instead of dedicated cables and cable boxes. 

What does that mean? 

It means that the new tech would open up the market to cable providers that are geographically limited to certain territories. Instead of requiring cables to bring you television programming, you could access the programming via the web. Cable providers could offer you different television "packages" over the console that will give consumers more options. 

In theory, the days of Comcast Corp. (Nasdaq: CMCSA) or Verizon (NYSE: VZ) - or the most affordable option, nothing - would end. You would have more choices than just a handful of companies' set channel packages and prices.

Everyone would be able to compete with cable provider giants.

Also, consider that we have already seen huge shift of consumers weaning themselves from cable and satellite to instead opt for online television and movie programming.  The success of Hulu and Netflix evidence this migration. 

"After having cable or satellite TV and its dozens and later hundreds of channels available anytime I wanted, I thought I'd miss it. But, in fact, I prefer watching TV a la carte online," executive editor Ryan McCaffrey wrote for entertainment website IGN.com.

And in a random twist of fate, U.S. Sen. John McCain, R-AZ, has chosen this month to introduce legislation that could blow up the cable industry.  He states three main objectives in the bill, named the Television Consumer Freedom Act of 2013.  They are:

• To encourage the wholesale and retail 'unbundling' of programming by distributors and programmers;
• To establish consequences if broadcasters choose to 'downgrade' their over-the-air service; and
• To eliminate the sports blackout rule for events held in publicly-financed stadiums.
  

McCain's bill would effectively force cable and satellite TV providers to grant consumers the option to individually select which channels they receive.  This is yet another vehicle that would grant more choices to consumers and decrease the monopolistic power of the cable providing giants.

Between Xbox's next-gen console technology, and McCain's a la carte channel selection bill, we are looking at a brave new world when it comes to television programming access.

Would you consider dumping your cable provider for the Xbox One?

Related Articles:

• Money Morning:
  Android@Home, Project X, and Other Secrets of Google Inc. (Nasdaq: GOOG)
• Money Morning:
  Apple TV: What We Know, What We Don't and Why You'll Stand in Line to Get It
• Yahoo! Finance:
  Microsoft's Next-Gen Xbox Will Change the World: Pachter
• Yahoo! Finance:
  New Xbox more than a game console for Microsoft
• Business Insider:
  Here's John McCain's Cable-Destroying Legislation
• IGN:
  The Pros and Cons of an Always-Online Xbox 720
• IGN:
  Watch the Xbox Reveal Event Live on IGN

Freeport has already signed deals to export natural gas to Britain's BP PLC and two major Japanese utilities, Osaka Gas and Chubu Electric Power. Freeport has been given the go ahead to sell up to 511 billion cubic feet annually to overseas buyers. Exports should begin sometime in 2017.

The DOE said in its news release, "The development of U.S. natural gas resources is having a transformative impact on the U.S. energy landscape, helping to improve our energy security while spurring economic development and job creation around the country."

Not a surprising statement in the light of the Energy Information Administration's forecast that production of natural gas will reach a record 69.3 billion cubic feet a day this year.

Cheniere Energy's Sabine Pass facility in Louisiana was given the government okay about two years ago.

More Approvals to Come for Natural Gas Companies?

Of course, this approval does not mean the Obama administration is yet fully behind the push to make exporting LNG a major industry.

Investors should recall that there are still 25 projects awaiting approval and the pace of approvals by the Department of Energy is still up in the air.

Minoko Manabe, a senior credit officer for Moody's, told Bloomberg News, "We don't think [this approval] is going to open the floodgates" for the department's approval of other applications.

Manabe did tell Bloomberg though that she thinks she knows which company will be the next to get approval. She thinks the Cove Point LNG export facility in Maryland proposed by Dominion Resources Inc. (NYSE: D) is next in line. Dominion recently signed deals with Japanese trading firm Sumitomo (it plans to sell the LNG to Japanese utilities) and Indian energy firm Gail to sell them LNG from the plant. Dominion's target date for overseas LNG sales is also 2017.

In addition, Sempra Energy's (NYSE: SRE) Cameron LNG facility in Louisiana will also win approval according to Manabe. The president of Sempra, Mark Snell, agreed.

He said in a statement that the approval is "an indication that other projects, including our own Cameron LNG, will receive this authorization soon."

Japanese companies, Mitsui, Mitsubishi and Nippon Yusen, along with France's GDF Suez have agreed to provide financing for most of the construction of the Cameron terminal in exchange for equity stakes equaling 49.8% of the project. Japanese utility, Tokyo Electric Power, already signed an agreement to purchase LNG from Cameron, as has GDF Suez - the largest European LNG importer.

The Future Is Bright for NatGas

As long as approvals keep coming from the DOE, it does not matter if the pace is rather slow.

Countries like Japan, the world's largest importer of LNG, are extremely anxious to buy LNG from the United States at much lower rates than the currently available in the Asian market.

According to Energy Department data, if most LNG terminals win approval, they will ship roughly 41% of this production of natural gas.

Money Morning Global Energy Strategist Dr. Kent Moors forecasts the United States accounting for a minimum of 9% of the global LNG trade within a decade. Moors alerted his Energy Advantage subscribers years ago to the profit potential of Cheniere - and they saw 82% gains.

That's just one energy company among nearly a dozen double- and triple-digit winners for Moors.

Moors has his eyes peeled for the "next Cheniere" - just go here to learn how you can get in on his new profit plays before their stocks take off.

Related Articles:

• Money Morning:
  Five Reasons Why Natural Gas Prices Will Continue to Rise         
• Reuters:
  Freeport LNG Receives DOE Approval to Export LNG
• Bloomberg News:
  Gas Export Approval Not Seen Signaling US Permit Flood
• Financial Times:
  US Energy Revolution Gathers Pace