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.
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Harnessing Activists to Help Find Turnaround Stocks
Activist investors often produce attractive returns for their clients; and you can still use their influence to help your position as a turnaround investor in two ways: Buy a position in a stock with the expectation that an activist will soon follow or buy after an activist takes a stake.
While one of the many dozens of activist funds might find their way to selecting your particular stock, this approach is likely to be frustrating and unrewarding. A better approach is to buy after the activist makes their move. Once an activist takes a stake in a company, how do you evaluate whether it is worthwhile to follow on? Admittedly, this is a bit of an art... Learn how you can harness the power of activist investors to find market-beating turnaround stocks.
Turnaround Letter Stock Pick Named Top Performer of 2017
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."