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.

Post-Bankruptcy Stocks

Number of Public Companies Shrinking?

Excerpted from the August 2016 Issue

When recently asked how many companies are in the Wilshire 5000, we naturally answered, “Five thousand.” However, on looking into it further, we were surprised to learn that there are only 3,607 companies in the index, which includes all U.S.-headquartered equities with readily available prices. Moreover, this is down from 7,562 companies in the index in 1998. Meanwhile, the number of listed companies outside the United States increased to 39,400 from 30,700 in 1996. What is going on here in the U.S. stock market?

The unusually large number of mergers since 1996 is one cause of the drop-off, according to a 2015 report by the National Bureau of Economic Research*. Going private, like Dell’s $25 billion deal in 2013, which will soon take EMC with it, is another major reason. Another contributor: failing to meet listing standards. The recent surge in energy company bankruptcies will boost delistings even further.

On top of all that, fewer companies are going public. There isn’t a shortage of new companies in the economy – this number actually continues to increase.  Rather, there doesn’t seem to be much incentive to go public these days. Promising young companies can get plenty of private funding, and technology-based businesses may need less capital than old-line manufacturers or bricks and mortar retailers. Furthermore, volatile stock markets and increases in shareholder and regulatory demands are driving companies away from the public market.

These trends seem likely to continue. What is less clear is their impact. Do valuations increase for the remaining public companies as the supply diminishes?  Will individual investors have less access to the best new companies? What will happen when interest rates rise and close off the spigot of cheap money driving private deals? One thing is certain: The shrinking list of Wilshire companies gives readers a sure-win trivia question to ask their friends.

* The U.S. Listing Gap, NBER Working Paper 21181 by Doidge, Karolyi and Stutz, 2015.

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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."