This month's purchase recommendation is an industrial company that has fallen out-of-favor with investors due primarily to operational problems, along with some macro concerns. The company has the leading market share in its industry, along with assets which have considerable but obscured value. A well-chosen new CEO appears highly capable of solving its operational issues and leading the company.
Continuing with our theme of turnarounds outside the United States, this month we look at Japan. One of the more fascinating markets over the past 40 years, the Japanese stock market, as measured by the Nikkei 225 index, nearly quadrupled leading up to its bubble-like peak in 1989 (a decade before the U.S. tech stock bubble). Its subsequent 75% collapse was followed by more than a decade of flat performance. In the past five years, the index has doubled, yet it remains at only half its 1989 level even as the S&P500 index has increased tenfold.
An enduring source of good investment ideas is corporate spin-offs. In these transactions, a company divests one of its businesses by distributing it to shareholders. Following are six post-spin-off stocks that are out-of-favor yet have changes underway or potential catalysts that could produce interesting turnarounds.
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.
This Forbeswrite-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."