The argument in favor of buying Kodak stock goes something like this: Now that Kodak has filed for bankruptcy, its stock trades for about 30 cents; but since it traded for more than $30 just a few years ago, doesn’t that mean it has to be cheap? Unfortunately, there are two major fallacies with this argument.

One of the things we like to see in a potential turnaround stock is a strong brand name. That will often provide the foundation on which the company can build its turnaround. However, the recent Chapter 11 filing by Hostess Brands and Eastman Kodak are reminders that well known brand names alone may not be enough to save a company. In both of these cases the brand names are widely recognized, but the products with which they are associated no longer represent strong business franchises.

Since last August, the stock market has been dominated by headlines about financial matters in Europe. It has been almost as though the fundamentals of U.S. stocks don’t matter anymore. Things might look great (well, maybe they haven’t ever looked great in recent months, but at least okay) in the U.S. but if Europe didn’t seem to be making any progress on solving its latest crisis (Greece, Ireland, Portugal or wherever) the Dow would fall sharply. Then if good news came from across the Atlantic, the Dow would soar.

The question continues..."Investment is always a risk, but there must occasionally be situations when you would "bet the farm" on a stock at a given time. Trouble is, I don't have a farm, but would someday like to get one."

I don’t usually respond to stock specific questions in this section of the website, but Bank of America is such a bellwether for the banking sector, and probably for turnaround stocks in general, that it is worth talking about here. My view is that Bank of America’s biggest problems are of a public relations nature and not of a fundamental, financial nature. Since late 2008, the bank seems to have had one public relations disaster after another. Every time there is a negative headline, the stock gets pushed down further.

You should almost never buy the stock of a company in Chapter 11. The only possible exception is if you are a very daring short-term trader.