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.

Tax Loss Selling/Year-End Bounce

Finding Short-Term Turnarounds in Year-End “Bounce” Stocks

It’s bargain hunting season again. Holiday shoppers flock to the malls and their favorite websites, and savvy investors search the stock market for year-end discounts. While our approach at The Turnaround Letter is heavily focused on long-term business fundamentals and underlying valuations, even we can be tempted by unusual short-term opportunities at year-end created by artificial selling pressure as investors toss their losers.

One source of selling pressure is the tax code. By selling losers, investors can generate taxable losses to offset other gains, saving on tax payments. Another source of selling is driven by professional investors. These holders of large stakes in public companies don’t want to spend January explaining to clients and consultants why they owned some big losers. It’s much easier to do some “portfolio window dressing” – removing them from their published annual reports by selling them prior to year-end. This tends to push down further the prices of already weak stocks.

Once the calendar turns to January 1st, these artificial pressures end. Many of the prior year’s worst performers bounce upward, sometimes sharply, early in the new year. Eventually, the longer-term fundamentals and valuations take over, but nimble investors can capture some of the bounce.

These ideas can be found by looking through the list of stocks in the S&P 500, and for more in-the-weeds investors the Russell mid-cap and small-cap indices. Not every weak performer will bounce – you want to stay away from stocks that might be weak for very good reasons. With some good analysis you can find some potentially good short-term bounce opportunities. Subscribers can reference the 12 vetted year-end bounce stock picks in our lates issue.

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Books we Recommend for the Holidays

Looking for a stocking-stuffer for the investor or businessperson in your life, or perhaps for yourself? Don’t have a lot of time to stroll through a brick-n-mortar bookstore or wonder which books among Amazon’s endless inventory are actually worth buying? Our list, assembled by George Putnam and Bruce Kaser, includes some fascinating new titles as well as several timeless classics about successful investing and leadership. All are valuable reads which any recipient will be thrilled to dive into. 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."