Avoid This Common Turnaround Investing Mistake
As The Turnaround Letter continues its series on avoiding common turnaround investing mistakes, we now focus on the all too common problem of timing your move too early.
Turnaround investors recognize the opportunity in a battered stock well before the rest of the market and want to pounce immediately. But even if the fundamentals look attractive and there is a margin of safety in the valuation, the stock can still decline--sometimes substantially. Perhaps an earnings report featured weak headlines that prompted selling by short-term traders, even if beneath the ugly news the company showed real improvement. This price downdraft can be difficult to endure.
Timing a turnaround purchase exactly right is very difficult. Getting “close enough” works well given the strong upside potential. One time-tested approach used by pros to reduce the impact of being too early is to buy only a starter position in a new name (maybe half of a typical position). If the stock falls off sharply but the long-term story is intact, these investors will buy more stock at the newly-discounted prices.
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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.
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.
Turnaround Letter Stock Pick Named Top Performer of 2017
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."
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