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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Amazon = US GDP 1970

Amazon joined Apple in reaching a $1 trillion market capitalization. $1 trillion is about the same as the total value of New York City property and the total value of loans at JP Morgan, the nation’s largest bank in terms of assets. Jeff Bezos’ $160 billion stake would place him (personally) as the #33 largest company in the S&P 500 in terms of market cap, next to Coca-Cola, Disney and Netflix. We aren’t bold enough to predict whether the shares will continue upwards or if they are in a bubble reaching maximum inflation. Setting aside for a moment their investment prospects, let’s admire the truly remarkable milestone that these two companies have reached. Read More.

EV/EBITDA: What Is It & Why Are We Using It More?

In reading recent editions of The Turnaround Letter, you have probably noticed that we are increasingly using EV/EBITDA as a valuation measure, rather than the better-known price/earnings multiple.  We thought it might be useful to describe this measure and why we like it.

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."