Sifting Through the Trash Heap

Looking at the trash heap -- the worst performers of 2014 -- in the large-cap arena yesterday wasn't too scary. Most names are easily recognized and the thoughts of any of them going to zero or even significantly lower yet again seems unlikely. Perhaps one could continue its descent into the mid-cap range, but I did not see the list as particularly scary.

I can't say the same when going through the mid-caps.

I will say I'm more hesitant to add any size in the mid-cap names compared with the large-cap group from yesterday, but I do feel they add another piece of the puzzle. I would be looking at three or four names here vs. the five on the large-cap side. Again, I'm going to split these on an international and domestic front and, again, one name hits both the lists. While these may not necessarily be the worst of the worst, at least domestically, I think there has to be more caution here. Before I unveil this list, you may want to cover the kids' eyes because it isn't pretty. You may want to hold someone close to you that you love because it's scary. You may even want to plug your nose because the performance of these companies just plain stinks.

On the international side, the four names I've narrowed my focus to are SeaDrill (SDRL), National Bank of Greece (NBG), Vimpelcom (VIP) and 3D Systems (DDD). All four of these names are down more than 65% year to date. I told you they stunk.

While the group is diverse in sectors -- encompassing technology, oil & gas, wireless communication and finance -- it is also diverse in the risks associated with each. But these are big risks.

NBG is hanging by the notice Greece will eventually recover while VIP is vulnerable to the action in the ruble. These are two absolutely huge risks and, in both, you are betting on a country or region. SDRL is going to be held hostage to the price of oil. These three are the definition of huge risk and huge potential reward. It is quite possible one could become worthless or all three cut in half, but it is also possible they could all double. DDD holds the risk of being in an up-and-coming technology. The unknown is what the actual demand and usage for 3D printing will be. This one may be the least risky of the group -- it is still a huge risk.

From the domestic side, only DDD makes the list again with a similar risk profile as far as sectors go and the risks decrease a bit in terms of currency and country survival. SDRL is replaced with Whiting Petroleum (WLL), which is trading under book value, has a more reasonable debt level than many in the oil and gas space, plus it just bought Kodiak Oil & Gas using stock rather than cash. The ability to leverage a plummeting stock price is a huge positive when it comes to upside potential in any rebound of oil prices.

Peabody Energy (BTU) also makes this list as it is the "cheap" coal name I think has the best chance at survival. Unfortunately, you have a big push back against coal domestically, so challenges are still abound. Genworth (GNW) fills the role of NBG in this group, and while I think it has less upside than NBG, I also see it as a much lower risk.

I'll admit none of these names are going to help you sleep well at night, but that isn't what this group is about. This group is about a high risk, but measured risk chance. When the list of 12 or so names is done, whether internationally or domestically, the thesis is that while two or three get hammered, two or three will double or even triple during the year. It is meant only as a portion, an aggressive portion, of a growth portfolio.

At the time of publication, Collins had no positions in any of the securities mentioned.