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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.

Bankruptcy/Chapter 11 / Bonds / Mid Cap / Post-Bankruptcy Stocks / Transportation

AMR-USAir Merger: More Benefit for Competitors?

One of the top stories in the bankruptcy and turnaround investing world over the past few weeks has been the merger of US Airways with AMR Corp. (the parent of American Airlines). Most of the press coverage has discussed the effect on the two airlines that are merging. We believe that, in the short run at least, the principal beneficiaries of the merger may be their competitors, particularly Delta and United.

When large airlines merge, the integration of the two carriers usually proves much more difficult than anticipated. We saw this several years ago when US Air merged with America West and again more recently when United and Continental came together. Each airline has many key components--such as aircraft fleets, reservation systems, union contracts and myriad other things--and integrating these disparate components can cause headaches for the merger partners. For example, a large percentage of United Continental’s flights were grounded one day a few months ago when glitches appeared after the company tried to integrate the two legacy computer systems.

We expect that for at least the next several years, the costs of the USAir-AMR merger will be greater, and the synergies will be less, than the managements expect. Moreover, there could be significant snafus that will drive away customers, sending them to competitors.

These possible snafus are not the only potential benefits for the other airlines. They will also benefit from the reduced competition in the industry, as the number of major carriers is reduced by one.

For these reasons, we suggest that investors may want to focus more on the stocks of Delta and United Continental (both of which are on our Purchase Recommended List) than on US Air or AMR. At worst, Delta and United will get a small boost from industry consolidation. At best, they might get a big boost if integration problems at USAir-AMR drive customers away from the merged carrier to other airlines.

(Disclosure Note:  Accounts managed by an affiliate of the Publisher have positions in the securities of all four airlines.)

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Puerto Rico Government Bankruptcy: Uncertainty But Also Investing Opportunity

Because of special tax law provisions that exempt the territory’s debt from not only federal taxes but also state taxes in every state, the bonds are widely held by investors across the country. Since the legal action is under a new law that has never been tested, there is tremendous uncertainty about how much creditors will recover and how long the process will take, but there may be opportunities for stock investors to profit from the island’s restructuring as well--perhaps with less downside risk than in many of the bonds. We found four public companies based in Puerto Rico that could benefit from stabilization in the island’s finances as well as three major insurance companies with exposure to Puerto Rican debt. 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:

Value Investing Stock Profit

* Bristow remains in our active portfolio (currently as a Hold), and 2,320% gain is as of 4/11/17.

Five Struggling Stocks That Will Turn Around

 

stock market advicex

 

Kiplinger points out that despite the post-election stock market surge, not all stocks have benefited from the uptick: "More than 100 issues in the S&P 500 have fallen in price this year, including dozens that have slumped by more than 10%....Yet these stocks won’t all stay in the dumps forever. Some will mount a comeback in 2017, making it an opportune time to try to identify the best candidates."

 

Quoting George Putnam, Kiplinger details five value opportunities for the new year.

 

Learn more about Putnam's investing success with turnaround stocks.