Investors’ lack of patience with this stock pick reminds us of the chef who gets frustrated that his cake, which requires an hour to properly bake, looks awful after 20 minutes. This mid-cap's problems are deep, so fixing them will take some time. We look at this investor impatience as providing an opportunity to buy into the turnaround at an even better price, and despite the market’s pessimistic view new management is making progress already.
As Warren Buffett points out, “price is what you pay; value is what you get.” With that thought in mind, we sifted through a list of stocks with market caps over $1 billion that are selling at huge discounts to their 52-week highs. We found a handful that have real value that the market appears to be missing.
The movie theater industry presents a very timely example of the cyclical versus secular dilemma. The stocks of the theater operators have been among the worst performers this year. While the broad market has gained nearly 13%, many stocks in the theater industry have declined by 20-50%. Are the problems secular or cyclical? The right diagnosis could mean a huge difference in returns.
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."