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

Beware Chapter 22's

From time to time we’ve written about the gain potential in post-reorganization stocks (the stocks of companies that have emerged from bankruptcy proceedings). As we’ve said, they are often undervalued because many investors shy away from a post-reorganization stock as a result of bad memories of the company’s prior problems. Often the company will have used Chapter 11 protection to solve those prior problems and it will have emerged as a lean and powerful business. However, recent news about two companies with well-known names serves as a cautionary reminder about post-reorganization securities.

AMF Bowling and Hostess Brands have both been in the news because they are back in bankruptcy for the second time. People sometimes give these cases the informal name of “Chapter 22”--in other words Chapter 11 twice. Both companies have iconic brands, which is usually a good sign. At least for those of us of a certain age, AMF is known for dominating the bowling alley business in the industry’s heyday  in the 1960’s and 70’s. Hostess makes the well-known Twinkies, as well as other tasty (but not-very-healthy) snack foods.

For a post-reorganization stock to be a good buy, the company must have used the Chapter 11 process properly to reshape its business. If the company was not aggressive enough in making changes during bankruptcy, it can end up back in Chapter 11 (or in Chapter 22, if you will), as was the case with both AMF Bowling and Hostess Brands.

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Is there value in bankrupt PG&E’s stock?

In nearly every case, the shares of a company in bankruptcy become worthless. In very rare cases, however, they can become great investments. W.R. Grace (NYSE:GRA) shares produced a 75-fold return, as an example. With California utility PG&E (NYSE:PCG) now in bankruptcy, the range of possible outcomes for its equity is wide.

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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.

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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."