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

W.R. Grace Emerges from Bankruptcy: A Couple of Lessons for Investors

W.R. Grace (stock symbol GRA), a specialty chemical producer, emerged from Chapter 11 earlier this month after nearly 13 years in bankruptcy and provided a couple of lessons to investors. The first lesson is that bankruptcy proceedings can last a long time.  This is especially true when the bankruptcy filing was precipitated by asbestos liabilities, as was the case with Grace. Other prominent--and lengthy--asbestos bankruptcies include Manville (six years in Chapter 11), Owens Corning (six years) and Raytech (17 years).

The other lesson, which is actually a confirmation of a lesson that we’ve seen in two other cases recently (American Airlines and Overseas Shipholding Group), is that there are exceptions to even some of the most reliable investing rules. In this case the rule is that the stocks of companies in Chapter 11 almost never do well. It is very rare that a company in Chapter 11 will have enough value to satisfy all of its creditors and have anything left over for stockholders. As a result, the stocks of most companies in Chapter 11 end up being worthless or almost worthless.

Grace was definitely an exception to that rule. While the stock dropped below 2 when the company filed for Chapter 11 in April 2001, it recovered several years later and has been on a fairly steady climb ever since, recently trading above 100. Unfortunately, we didn’t recommend buying the Grace stock at its lows, but we did highlight it as an interesting speculation in December 2002 when it was trading a little above 2. We highlighted it again in late 2006 when the stock was about 16.

Now Grace is considered a fairly mainstream stock, and therefore is probably not dramatically undervalued. Nonetheless, since it recently emerged from Chapter 11, we have added the Grace stock to the Post-Bankruptcy Stock IndexTM.

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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."