The Turnaround Letter
View Archived Issues:
February 2012
Valuation Compression: Springboard to Future Gains?
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High Yield Bonds: Be Cautious
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Revisiting TARP Bank Warrants
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Sale Recommendation - February 2012
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Sale Recommendation 2 - February 2012
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Purchase Recommendation - February 2012
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News Notes & Updates - February 2012
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Turnaround Tips
TLCorner
Don't Chase the Headlines
The recent unfortunate accident involving the Costa Concordia cruise ship, which is owned by a subsidiary of Carnival Corp., raises an important investing question: Should you bail out of a stock if the company is affected by a serious negative event? Unless the event could be part of a series or trend, the answer is usually “no,” for two reasons.
Read More.Should You Buy Kodak Stock Now?
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.
Read More.Good Brands are Not Enough
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 In both of these cases the brand names are widely recognized, but the products with which they are associated no longer represent strong business franchises.
Read More.What did The Turnaround Letter see that others did not?
Questions & Tips
AskGeorge
With so much turmoil and uncertainty in the U.S. economy, and even more fear of collapse overseas, do you ever recommend just getting out of the stock market all together and hunkering down with something safer like bonds?
I never recommend getting out of the stock market entirely--or even making major changes to your allocation to stocks. The stock market is so unpredictable that if you bail out, the risk is very high that you will miss a significant upturn. Moreover, even if you make the right call to get out of the market, you then have to muster the courage to get back in.
Read More.What is your opinion on investing in foreign turnaround companies?
There are certainly good opportunities in foreign turnarounds, but also very significant risks as well. The market inefficiencies that provide unusually high return potential for turnarounds here in the U.S. are probably even greater in foreign markets. However, there may be special, local features that affect foreign companies that we may not understand when we view them from afar.
Read More.In our normally quite efficient securities markets, why are there certain structural factors that make bankruptcy securities inefficient and therefore potentially unusually profitable?
The structural factors relating to bankruptcy securities can be both legal and psychological. As an example of a legal factor, many institutional investors (such as insurance companies or mutual funds) are not allowed, either by law or by their charter, to hold bonds that have defaulted and no longer pay interest.
Read More.Bankruptcy Investing
George reflects on bankruptcy investing activity & trends seen in 2010. Read more.