This mid-cap stock pick’s outlook is much healthier than the stock market is giving it credit for: Despite the lackluster summer, revenues will likely be flat from a year ago; and the company’s upgrade program is showing very promising results. Management is focusing its cash flow on repaying down much of its elevated debt by 2019 as well as on high-return upgrade projects and repurchasing $100 million of its shares. With no significant debt maturities until 2022, the company has considerable runway.
Looking ahead, we expect corporate bankruptcy activity to remain at a high level for at least the next few years. Much of the unprecedented amount of debt that has been raised during the exuberant markets since 2009 comes due soon. If we are correct and the pace of defaults pick up, this will create a wealth of opportunities for distressed debt investors.
With all the humility that any outlook requires, we can make an easy case for more stock market gains in 2018, as nearly every indicator points in this direction: Low interest rates, strengthening economies and more stimulus from the United States’ landmark tax law should foster more earnings growth and provide an overall supportive environment. But as contrarians, we see this view as being widely held and at risk of becoming the “only” view.
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."