This mid-cap post-bankruptcy stock’s outlook is much more favorable than the market’s view. The company is now solidly profitable; and its new leadership team and board of directors is focusing on reducing its already low cost structure, improving its mine quality, repaying debt and returning capital to shareholders. As an added bonus, its regulatory burden is unlikely to increase under the Trump administration, and management is working to present a considerably more environmentally-friendly face to the public.
Whenever we are looking for good turnaround stocks, one feature that piques our interest is a high dividend yield. A substantial dividend compensates you even if you have to wait for the turnaround to take effect and push the stock price up. Moreover, after the stock does begin to move up, the yield will boost your total return. With this in mind, we sifted through the stocks in the S&P 500 Index to find seven companies with high dividend yields that hold promise for turnarounds and a reasonable likelihood of sustaining their dividends.
Determining what EV/EBITDA multiple makes a stock attractive, just as with a P/E multiple, is admittedly a form of art. We uncovered four companies that have low EV/EBITDA multiples but noticeably higher P/E multiples that might be worth a closer look.
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.
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.
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."