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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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."