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.

Automobiles & Components / Post-Bankruptcy Stocks

How Will the Recall Issue Affect GM Stock?

Because General Motors is currently the subject of many negative headlines arising from a significant recall relating to ignition switches, we wondered what long-term effect the recall would have on GM’s stock. Our best guess is “very little.”

As contrarian investors, we like to “buy on bad news.” We’ve looked at a number of product liability issues over the years, going back as far as the exploding gas tanks on Ford Pintos in the 1970’s. Our general conclusion is that once the negative headlines subside, even major product liability issues have little long-term effect on stock price. The one major exception has been for asbestos-related liabilities, which usually have a devastating effect on the company’s common stock.

We decided to test that conclusion with a relatively recent example. In late 2009 and early 2010 Toyota issued a series of recalls relating to sticking accelerator pedals. Just this past week, Toyota agreed to pay a $1.2 billion fine to the U.S. government arising from the accelerator issue--and that is on top of a $1.1 billion class action settlement with private litigants late last year.

So what happened to the Toyota stock? From the end of February 2010 (which is the month after the recalls peaked) to March 25, 2014, Toyota stock has gained 45%. This compares to a gain of 31% for Ford stock and virtually no gain for Honda stock over the same period. 

Obviously, many factors affect a stock’s long-term performance, but our conclusion is that liability relating to recalls or other product defect issues usually isn’t one of them. As a result, we think the recent dip in the price of GM stock could be a buying opportunity.

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Amazon = US GDP 1970

Amazon joined Apple in reaching a $1 trillion market capitalization. $1 trillion is about the same as the total value of New York City property and the total value of loans at JP Morgan, the nation’s largest bank in terms of assets. Jeff Bezos’ $160 billion stake would place him (personally) as the #33 largest company in the S&P 500 in terms of market cap, next to Coca-Cola, Disney and Netflix. We aren’t bold enough to predict whether the shares will continue upwards or if they are in a bubble reaching maximum inflation. Setting aside for a moment their investment prospects, let’s admire the truly remarkable milestone that these two companies have reached. Read More.

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.

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."