This oil & gas stock pick checks many of our turnaround candidate boxes. First, it recently emerged from bankruptcy, which usually brings a discounted price but also a fresh start. Additionally, the company is led by a new CEO. Importantly, the Company has maintained its strong post-exit balance sheet and its immediate plan is to increase its strategic options by boosting free cash flow and financial strength.
While we generally like high yield bonds as a place to invest--the BofA/Merrill Lynch High Yield Index has a solid 10-year annualized total return of 7.8%, high yield returns tend to be somewhat cyclical. And, to quote an experienced high yield investor we know, the cycles “tend to end badly.” The two graphs in this article suggest that we may be coming to a bumpy end to the current good times in the high yield market.
We're beginning to see articles in the financial press questioning whether we are in a new bubble. While we could perhaps be persuaded that a significant selloff in the stock market may be in the offing, we wouldn't call the current market heights a bubble.
This article discusses six value stocks that have acquisition-friendly traits: niche businesses, decent cash flows, respectable balance sheets and attractive valuation. While making no promises, we think they could attract takeover interest.
At first glance, the shares have decent appeal as a turnaround investment. Looking deeper, however, the fundamentals are not as strong and stable as they appear. Surplus cash flow is tight, a key driver is weakening, it is increasingly reliant on China and has other nagging issues. We don’t see the new CEO as a catalyst for change. Despite the “first glance appeal”, Tupperware isn’t a good fit as a turnaround stock.
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."