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.

Banks / Emerging Markets/International Stocks

Europe’s Not Out of the Woods Yet, But…

The latest banking crisis in Europe, this time in the tiny island nation of Cyprus, shows that the continent has not yet truly solved its financial problems. The European economy has only applied a series of band-aids that have temporarily averted disaster, but have not yet provided a firmer long-term footing for the Euro-bloc. There could be another crisis of confidence at almost any time, with Italy and Spain being the most likely instigators.

That’s the bad news. The good news is that the U.S. stock market is not being affected very significantly by the doings across the pond. Unlike the fall of 2011, when every negative headline out of Europe sent the U.S. markets into freefall, by now our markets have become more inured to the continent’s crises du jour. The recent headlines from Cyprus pushed the U.S. markets down for short periods, but they generally rebounded quickly and strongly. Moreover, in contrast to 2011 when a headline-induced market decline would drag down virtually all stocks, recent market dips have been much less broad-based, with many winners to be found among the losers.

Maybe the stock market has already priced in most of the ultimate negative outcomes in Europe. Or maybe we’ve figured out that Europe’s problems don’t have that much effect on the U.S. economy or markets. For example, in 2011 a problem with a European bank would send the stock of a Midwestern U.S. regional bank reeling even though that bank had almost no exposure to Europe. Over the last few weeks, the U.S. regional bank would only have dipped slightly along with the broad market. (For more of our thoughts on U.S. banks, see the upcoming April issue of The Turnaround Letter.)

This means that our stock market is once again being driven by fundamentals rather than headlines, and this is a good thing for investors. It is much easier to analyze a company’s fundamentals than to predict what tomorrow’s headlines will be. The U.S. stock market may continue to rise in the coming months, or it may fall, but at least it is behaving in a more rational manner.

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IBM: Not Yet Time to Swing at this Pitch

IBM’s stock underperformance since IBM’s current CEO took the helm in 2012 has been stark, with the shares declining 23% while the S&P500 Index has more than doubled. One big problem: revenue growth rate is zero, at best. Without revenue growth, what’s left to entice investors? The real driver of value at IBM – free cash flow that is used to repurchase shares. Can IBM borrow its way to shareholder prosperity as its cash flows shrink? What to do with IBM shares? Wait for a better pitch in the form of a catalyst or much lower valuation. 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."