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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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."