Don't be Trendy!

Turnaround investors must be especially wary of trendy sectors. Recently, this has been demonstrated by the dramatic implosion of several “green” energy companies, including wind and solar energy providers. We’ve seendramatic falls from grace many times before. A few stocks, or a whole sector, catch the public’s fancy. Share prices skyrocket…only to come crashing back to earth a few months or quarters later. Solar power is simply the latest in a long list of fashionable sectors—after telecom, Internet and theme-based dining, to name just a few.

The Turnaround Letter’s one rule in choosing stocks is that there must be a solid core business with long-term viability. Although these trendy companies can sometimes find a way to make money, most of the time that does not happen. The trendy theme may merely be a passing fad, or the business model that looked so good on paper may not actually work.

Sometimes the business concept may be okay, but it turns out that someone else can execute it more cheaply. That’s what has happened in the solar power sector: Chinese solar companies are eating everyone else’s lunch. For a successful turnaround to work, you always need a solid, viable core business.

The bottom line? Trendy companies rarely present good distressed investment opportunities.

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Identify & Profit from Distressed Investing

Free Report: Turnaround Investing Mistakes

Turnaround Investing Blog

Turnaround Investing Blog

IBM: Not Yet Time to Swing at this Pitch

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. Read More.

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.

Read More.

Turnaround Letter Stock Pick Named Top Performer of 2017

 

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What Last Year's Top Stock Pickers Are Buying in 2018

 

This Forbes write-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."