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.

Bankruptcy/Chapter 11 / Diversified Financials

Turnaround Investing Philosophy: 32 Years Later, Some Things Never Change

Recently I was asked how my investing perspective changed over the 32 years of publishing The Turnaround Letter. It's a fascinating question because change is constant, and often beneficial (although that's not a given) in the business world. If change is the norm, can investing principles stay constant? I firmly believe that they can.

For example, Apple is one of the greatest value investing stories in history. You can call it the validation of the Benjamin Graham's value investing thesis. Apple was near bankruptcy in 1997 and Microsoft had to come in and rescue it with a $150 million equity investment. Without that fortuitous investment we may not have had revolutionary products like the iPhone or iPad.  MarketWatch author Mark Hulbert recently pointed out that I recommended Apple in 2002, when it was trading for a split-adjusted price of $1.14. Hard to believe that Apple stock traded for little over a dollar (split-adjusted) just sixteen years agoIn his article, I shared that a lot of the same basic principles I believed when I wrote our first ever Letter, I still believe today. For example:

  1. While much of the stock market is quite efficient, there are inefficient niches where you can earn outsized returns, and I still believe that turnaround stocks represent such a niche.
  2. You should not try to time the market.  In the unlikely event you are smart (lucky?) enough to get out of the market at the right time, it is even more unlikely that you will be able to get back in at the right time.
  3. Two of the most important keys to successful investing are diversification and patience.  If anything I believe this even more strongly today.  No matter how much conviction you have on a stock, it won’t always work out the way you expect.  Diversification is the best way to protect against that.  Similarly, there are many times where I have been ultimately right but definitely early.  You have to have the patience to wait for your analysis to pan out.
  4. Many of the elements that I look for in a turnaround stock have not changed.  These include:

a. Solid core business.
b. A good brand or franchise.
c. A healthy enough balance sheet to give the company enough time to fix its problems.
d. New management that can bring about change.
e. A large, active investor pushing the company to create shareholder value.
f. A good dividend yield to compensate you while you wait for the turnaround to take hold.

Through diligence, and hard work the market still rewards those with the patience to persevere. 

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Is there value in bankrupt PG&E’s stock?

In nearly every case, the shares of a company in bankruptcy become worthless. In very rare cases, however, they can become great investments. W.R. Grace (NYSE:GRA) shares produced a 75-fold return, as an example. With California utility PG&E (NYSE:PCG) now in bankruptcy, the range of possible outcomes for its equity is wide.

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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.

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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."