Turnaround Investing Blog

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

When the Headlines Overwhelm the Fundamentals

Since last August, the stock market has been dominated by headlines about financial matters in Europe. It has been almost as though the fundamentals of U.S. stocks don’t matter anymore. Things might look great (well, maybe they haven’t ever looked great in recent months, but at least okay) in the U.S. but if Europe didn’t seem to be making any progress on solving its latest crisis (Greece, Ireland, Portugal or wherever) the Dow would fall sharply. Then if good news came from across the Atlantic, the Dow would soar.

This has been true of sectors and individual stocks as well.  For example, many of the U.S. banks have been making steady progress in recovering from the real estate/financial crisis of 2008 and early 2009. But that didn’t matter this year. When investors became worried that European banks might fail, they crushed bank stocks here in the U.S.--even those banks that had little or no exposure to Europe.  Some of the American bank stocks got pushed down to levels this fall that were near or even below their lows of early 2009. And the same has been true of many other turnaround stocks. When investors get spooked by the headlines, they dump anything they consider risky, and turnaround stocks frequently (although often wrongly) fall into that category.

During periods like this when the headlines dominate everything else, there is really only one thing you can do: be patient. When the news gets better--and eventually it will--stock prices will once again be driven by fundamental, economic factors. And if they have been depressed by negative headlines, stocks are likely to soar when the headlines subside. If you get scared by the headlines and dump all your stocks, you will miss the rebound and be left wondering when to get back into the market again.

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IBM: Not Yet Time to Swing at this Pitch

IBM’s stock underperformance since IBM’s current CEO took the helm in 2012 has been stark, with the shares declining 23% while the S&P500 Index has more than doubled. One big problem: revenue growth rate is zero, at best. Without revenue growth, what’s left to entice investors? The real driver of value at IBM – free cash flow that is used to repurchase shares. Can IBM borrow its way to shareholder prosperity as its cash flows shrink? What to do with IBM shares? Wait for a better pitch in the form of a catalyst or much lower valuation. Read More.

Comparing Stocks Vs. Bonds

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. Many turnaround companies have only one class of securities available to investors but where there are different classes to choose from, it can pay to do a little extra analysis of the various options.

Read More.

Turnaround Letter Stock Pick Named Top Performer of 2017

 

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What Last Year's Top Stock Pickers Are Buying in 2018

 

This Forbes write-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.

 

George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."