Turnaround Investing Blog
Turnaround Investing Blog RSS FeedRSS

George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Automobiles & Components / Post-Bankruptcy Stocks

How Will the Recall Issue Affect GM Stock?

March 26, 2014
/ Print /
| Share More
/ Text Size+

Because General Motors is currently the subject of many negative headlines arising from a significant recall relating to ignition switches, we wondered what long-term effect the recall would have on GM’s stock. Our best guess is “very little.”

As contrarian investors, we like to “buy on bad news.” We’ve looked at a number of product liability issues over the years, going back as far as the exploding gas tanks on Ford Pintos in the 1970’s. Our general conclusion is that once the negative headlines subside, even major product liability issues have little long-term effect on stock price. The one major exception has been for asbestos-related liabilities, which usually have a devastating effect on the company’s common stock.

We decided to test that conclusion with a relatively recent example. In late 2009 and early 2010 Toyota issued a series of recalls relating to sticking accelerator pedals. Just this past week, Toyota agreed to pay a $1.2 billion fine to the U.S. government arising from the accelerator issue--and that is on top of a $1.1 billion class action settlement with private litigants late last year.

So what happened to the Toyota stock? From the end of February 2010 (which is the month after the recalls peaked) to March 25, 2014, Toyota stock has gained 45%. This compares to a gain of 31% for Ford stock and virtually no gain for Honda stock over the same period. 

Obviously, many factors affect a stock’s long-term performance, but our conclusion is that liability relating to recalls or other product defect issues usually isn’t one of them. As a result, we think the recent dip in the price of GM stock could be a buying opportunity.

Read More Distressed Investing Blog Entries

Learn George Putnam's Turnaround Secrets

stock picks

Turnaround Investing Blog

Turnaround Investing Blog

Turnaround Investors Must Be Wary of Debt

There is an old saying among turnaround investors: “earnings and assets come and go, but debt is forever.” Read More.

Market-Beating Profit: The 200+ Club

Turnaround stocks present a unique opportunity for savvy investors to buy in at bargain prices. Take a look at this list of just a few of our purchase recommendations that have realized a return rate of 200% or better:

* Bristow remains in our active portfolio (currently as a Hold), and 2,017% gain is as of 10/20/16.

Retail Turnaround Trio

value stock


MoneyShow.com interviewed George to learn more about his favorite value stock picks for today's market. In "Retail Turnaround Trio," Steve Halpern highlights three of The Turnaround Letter's recently-profiled retailers: JWN, TIF and SPLS.


Putnam notes, "Well the retailing sector is undergoing very fundamental change as people move away from the bricks and mortar mall doors to buying more and more online but that's not going to wipe out all of the old-fashioned retailers. Starting the middle of 2015, investors just moved away from retailers en masse and a number of them are trading at about half the level they were a year ago. We thought some of the higher quality names that definitely will be survivors looked interesting."


Learn more about these three retail stocks poised for a turnaround.