The market volatility that has followed the recession has created an environment where there are a lot of stocks that are presently unloved by Wall Street but still have many of the characteristics that I look for in turnaround opportunities. The market’s rebound in the last few years combined with a “confidence hangover” as a result of the recession has created one of the best turnaround investing situations that I have seen in years.
March of 2012 marked the third anniversary of the stock market’s low point following the 2008-09 financial meltdown. Since that time, the stock markets have indeed rallied; the S&P gained 110% making the three year stretch of 2009-2012 one of the best periods in history to own stocks. Stock ownership, according to a recent AAII survey is at 59%, just a little below the pre-recession average of 60%...so investors are buying stocks again.
But despite the market rebound, there are a lot of companies out there, with good solid fundamentals and other turnaround characteristics that are trading today near or below their March 2009 levels. This is the perfect environment for turnaround investing.
The question should be...why not turnarounds?
Turnaround investing is the process of looking for investment opportunities in down-and-out companies that are poised to rebound: companies that Wall Street unjustly hates for one reason or another. Turnaround opportunities lie in companies that for various reasons have dropped in share price but are about to turn themselves around and when they do, investors who get in near the bottom can ride these investments for hefty gains on the way back up. These are “maximum potential” investment opportunities. They could be big name stocks with emotionally-battered prices or restructured bargains fresh out of bankruptcy--with healthy balance sheets and huge growth potential.
There are many reasons for the tremendous profit potential in turnaround situations, but most of them relate to the basic fact that most investors, including many “sophisticated” institutions, are afraid of turnaround situations. Most brokers and Wall Street analysts avoid turnaround situations because they have been burned by the stock on the way down. This means that they sell potential turnaround stocks too soon--as soon as the company’s troubles become known--and they buy them back too late, only after they are certain that the company will recover fully. When these investors bail out that is usually the time to buy in!
“I am a long-term investor and have read The Turnaround Letter for over 10 years and have done incredibly well.”
R Smith, Stoughton, MA
The Turnaround Letter is a monthly newsletter and associated website that focus on distressed and turnaround investing. Published since 1986, The Turnaround Letter is one of the longest-standing and most successful newsletters on the market today.
"Turnaround investing" is an industry buzzword but I have been practicing this concept for over 25 years. I am considered one of the nation's leading experts on bankruptcies and turnaround investing, and my keen insight has resulted in The Turnaround Letter being ranked by Hulbert Financial Digest, a feature of MarketWatch.com that monitors the stock recommendations of 199 investment newsletters, as the third best performing investment newsletter over the last 20 years.
Our approach is simple: We avoid the "blue chips" and "hot" stocks that most investors are clamoring to buy. Instead, we search out companies that have had some problems and are temporarily out-of-favor but are in the process of turning around. These stocks seem like laggards when we first identify them, but as the turnaround becomes more evident, Wall Street will jump into the stock and push the price up--often dramatically.
Our approach has always been not to follow the crowd. We seek out unloved, down-and-out turnaround situations. The Turnaround Letter’s approach to investing is designed to get you in before the good news is out: when prices are lowest and profit potential is highest--and before big investors realize their mistakes and swarm back in and bid prices (and profits) out of sight.
Turnaround stocks operate in an “inefficient” market. Brokers drop them; analysts ignore them and the companies themselves rarely make news and avoid publicity. We focus on stocks that most other investors ignore…down and out companies poised for a rebound.
“I bought Flextronics in January of 2010 based on The Turnaround Letter’s recommendation and sold it in January 2011 and realized a 200% return on my investment.”
P. Stemcook, Los Angeles, CA
Sometimes turnaround situations are created when an economic downturn hits an industry hard. Terex Corp. is a leading manufacturer of heavy equipment, including cranes, earth moving and road building equipment, aerial platforms and mining equipment. The company rode the global boom in construction, energy development and mining from 2000-2009 pushing the stock as high as $96 in 2007. However as construction stalled investors lost faith in the stock and it dipped to the teens in early 2009.
The Turnaround Letter recognized that Terex was well positioned to grow again when the worldwide economy recovered. Its products were essential to many critical sectors such as natural resource development, residential and commercial construction and infrastructure creation. It was well diversified in terms of product offerings and the geographic markets it serves. Moreover Terex was a market leader in many of the markets it served.
They had a strong management team and a strong balance sheet. In other words they had a number of the things we look for in turnaround candidates.
In February of 2009 I recommended that my readers purchase Terex for $12.57 and hold it till it gets to $25. Today The Turnaround Letter subscribers that took my advice are sitting on a 95% increase.
The TurnaroundLetter.com website houses the largest collection turnaround investing advice and insight ever assembled in one location. The goal of this website is to serve as a resource that helps you expand your investing knowledge and success. Keeping in mind that education is just as important as market-beating purchase recommendations, we have designed this site to offer many features that help our viewers, registered members and subscribers become successful turnaround investors. At TurnaroundLetter.com you will find:
My purchase recommendations have an 11.7% annualized average return over the last 20 years. We also track and post news stories about our recommended companies so you can stay on top of your investments.
A regularly updated blog in which I share my thoughts on the turnaround investing opportunities that exist in this challenging economy. In this feature, I look at different industries, investment vehicles and strategies with his eye on uncovering turnaround opportunities.
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Potential Turnaround Companies
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“George’s knack for picking winners and his ability to explain his investment rational in a manner that is clear and
D. Barry, New York, New York
I have been providing turnaround investing advice for over 25 years through all kinds of economic conditions and have helped thousands of subscribers identify the beaten-down stocks with real value that will eventually prevail regardless of where the stock market goes. Given this, The Turnaround Letter may be the best investment you ever make.
George Putnam, III, Editor
The Turnaround Letter