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 / Energy

Beware of Trendy Turnaround Candidates - Even Green Ones

The stocks of a number of “green” companies have soared and then crashed and burned over the past year or two. This is particularly true in the solar energy field. For example, Energy Conversion Devices saw its stock climb above 80 in mid-2008. But the company’s results never justified the lofty valuation, and it ended up filing for bankruptcy on February 14 of this year. The stock has fallen to 0.16, and it is probably overpriced even at that level.

We’ve seen this happen many times before. A few stocks, or a whole sector, catch the public’s fancy, and the share prices take off only to come back to earth a few months or quarters later. Solar power is just the latest in a long list of trendy sectors--after telecom, internet and theme restaurant companies to name just a few.

Our number one rule in choosing turnaround stocks is that there must be a solid core business with long-term viability. Sometimes one of these trendy companies will eventually find a way to make money, and the stock will rise Phoenix-like from the ashes, but most of the time that doesn’t happen. Sometimes the trendy theme is merely a passing fad. Or the business model that looked so good on paper doesn’t actually work.

Sometimes the business concept may be okay, but it turns out that someone else can execute it more cheaply. That’s what has happened in solar power. The Chinese solar companies are eating everyone else’s lunch.

The bottom line is that trendy companies rarely make good turnaround investments. For the turnaround to work, there must be a solid, viable core business to rebuild around.

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Tupperware: Not a Good Fit as a Turnaround Stock

At first glance, the shares have decent appeal as a turnaround investment. Looking deeper, however, the fundamentals are not as strong and stable as they appear. Surplus cash flow is tight, a key driver is weakening, it is increasingly reliant on China and has other nagging issues. We don’t see the new CEO as a catalyst for change. Despite the “first glance appeal”, Tupperware isn’t a good fit as a turnaround stock. 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."