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.

Chicago Cubs Demonstrate the Value of Leadership in Organizational Turnarounds

In 1908, the Chicago Cubs dominated baseball, winning their second consecutive World Series title. The club continued to play highly respectable baseball until 1932: When PK Wrigley assumed ownership the team’s leadership lost its way, and the on-field results in the following 77 years were the worst in all of the major professional sports.

In 2009, the Ricketts family acquired the Cubs. Under the new leadership of baseball genius Theo Epstein, the Cubs hired veteran winning manager Joe Madden, modernized its previously antiquated operations, assembled a remarkably young and talented team and in 2016 produced the best regular season record in the league. Now playing in the World Series for the first time since 1945, there is little doubt that their new leadership’s commitment to success is producing a much brighter future.

Leadership matters. Whether in sports or in business, an organization is not just a collection of people, cash, physical property, intellectual property and other assets. More than anything else, an organization is a living entity whose success is driven by the leadership that directs these assets and leverages what these assets can produce. Not every new management team is highly capable and new leadership cannot always overcome dire strategic situations or the quagmire of a decaying industry. But without good leadership, no business can prosper for long--much less survive.

Many investors perceive leadership changes as higher-risk. But at The Turnaround Letter, we view it as exactly the opposite: Companies with poor leadership carry tremendous investment risk--sooner or later they will stumble, producing a share price effect that rarely is pleasant. However, companies with capable leadership work diligently to improve their operations and financial condition, and re-focus the organization’s resources toward more productive activities. We like the effect this has on investment risk and the share price.

Investing where there are changes in the leadership of underperforming companies has always been a cornerstone of The Turnaround Letter's investing approach. We believe this type of change, combined with an out-of-favor share price, is a tremendous source of long-term, home run stock profit.

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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."