With a successful turnaround, we would expect to see considerably higher earnings and cash flows, along with higher multiples for this retail stock pick; and a private equity firm has a $14.50 conversion price on its preferred stock, which further incentivizes management and board to produce shareholder value.
Agricultural commodities have been in a slump for much of the last three years as a result of shorter-term issues such as over-production of certain crops, weather issues and temporary swings in demand related to local economic conditions and currency movements. We believe that the agricultural cycle is likely to begin to rebound in the not-too-distant future.
Many IPOs are for very decent companies--it's just that they tend to be over-hyped. As contrarians, our interest is sparked when a solid (although perhaps less exciting company) goes public but fails to capture investor enthusiasm. The stock then drifts down to a level where it becomes a good value investing opportunity.
While the common stock of a turnaround candidate usually has the greatest upside potential, other classes of securities, such as bonds or preferred stock, may offer attractive profit possibilities with less risk.
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George reminds value investors: "Fortunately, many of the factors...just aren't present in the market, and the other reason that investors seem to be down on the banks is they sort of expected the Fed to raise interest rates a little faster than they have. And the banks do better when interest rates are rising because they have wider margins on their loans, but I think the Fed will gradually raise rates to we will see profits improve, and so I think this downturn is really temporary."