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

Bonds / Post-Bankruptcy Stocks

Mid-Year Bankruptcy Investing Update

Excerpted from the July 2012 Issue

July 27, 2012

Bankruptcy filings by publicly traded companies in 2012 are running at roughly the same pace as last year – 31 filings so far this year versus 37 at the same time last year. This year’s corporate bankruptcies are somewhat larger (both including and excluding financial companies) than the filings during last year’s first half, but in 2011 we saw a number of big companies go into Chapter 11 late in the year.

We are seeing a few more financial companies file for bankruptcy this year than last, but nowhere near the number that we saw from 2007 through 2010. There are also three aviation related companies (Hawker, Pinnacle and Global) on the list of largest bankruptcies of 2012. Otherwise, there are no obvious trends in the types of public companies going bankrupt.

Until we get a few more big Chapter 11 filings, we don’t see much in the way of great bankruptcy investing opportunities. The bonds of AMR (the parent company of American Airlines, which filed for Chapter 11 last November) could have further gain potential, but they have already run up quite a long way.  Kodak is probably the next most prominent Chapter 11 case, but the value of Kodak bonds will depend almost entirely on the value of the company’s patents, which is very hard to determine. We recommend that investors be patient because we expect better opportunities down the road.

For our thoughts on why we may see more bankruptcy filings in the not-too-distant future, as well as our 2012 bankruptcy statistics, see the full article in the July 2012 Turnaround Letter.

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Investors have newfound enthusiasm for domestic economic growth, as a Trump presidency could bring new infrastructure spending, lighter regulatory burdens and lower corporate taxes. While the distance between campaign promises and corporate profits can be vast, we agree with the market’s general assessment of how government policies might change. 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 2,057% gain is as of 11/9/16.

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Chicago Tribune highlighted this Kiplinger's Money Power write-up on George's contrarian investing approach and The Turnaround Letter's April 2016 monthly turnaround stock pick.

 

Darren Fonda notes, "…besieged stocks often start to recuperate as the headlines fade and investors anticipate a return to precrisis sales and profits. The trick, of course, is to find companies that are more likely to rebound from a setback than collapse entirely."

 

Learn more about Putnam's turnaround investing strategy.