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.

Bankruptcy/Chapter 11 / Post-Bankruptcy Stocks

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.

First, as we have pointed out many times in the past, the stocks of companies in Chapter 11 almost never do well. Under the rules of bankruptcy, all the creditors who come ahead of the stockholders, such as banks, bondholders, suppliers, etc., must be paid off in full before shareholders get anything. In almost every bankruptcy, there is not enough value left over after other creditors have been satisfied to give anything to the stockholders.

Therefore, the stock in a chapter 11 case almost always ends up worthless or nearly worthless. (Sometimes, the old stockholders will get some very out-of-the-money warrants or a few shares of heavily diluted new stock, but those typically have little or no value.)

The other fallacy is to try to estimate the future price of the stock based on where it traded in the past. A stock’s value is determined solely by the company’s current and future assets and prospects, and its past trading price is irrelevant. Unfortunately, Kodak’s future looks much less illustrious than its past.

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Lessons from the 1st Turnaround Letter of 32 Years ago

In July, 1986, exactly 32 years ago, George Putnam sent the first Turnaround Letter to subscribers. Technology back then seems like the Stone Age, with hard copy research and primitive CompuServe dial-up service. Wall Street ignored turnaround stocks back then and continues to ignore them today. While technology has changed immensely in 32 years, The Turnaround Letter’s philosophy of selecting out-of-favor companies on the verge of turning around hasn’t changed. Our timeless process helped driven The Turnaround Letter’s independently-verified market-beating returns. 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."