An enduring source of good investment ideas is corporate spin-offs. In these transactions, a company divests one of its businesses by distributing it to shareholders. Following are six post-spin-off stocks that are out-of-favor yet have changes underway or potential catalysts that could produce interesting turnarounds.
Participating in some of the savviest investment funds often requires a minimum investment of $5 million or more, a commitment to tie up one’s money for years and a tolerance for less than full disclosure about the fund’s holdings. These funds are essentially out of reach to all but a few large investors. However, some funds offer alternative ways to participate, available to investors in the form of publicly-traded equities. Listed below are six stocks that can provide access to some of the smartest fund managers, in several cases at meaningful discounts to the underlying NAV.
Over the past few months, we’ve seen an increase in the number of companies outside the United States that have shown up on our screens as undergoing meaningful change. We also thought it was interesting to look outside the U.S. because international markets (measured by the MSCI EAFE index) have underperformed U.S. stocks (measured by the S&P 500 index) so far this year.
Global financial institution Citigroup (NYSE: C) reported healthy results for the fourth quarter. Better internal execution and strong external conditions, combined with a strong capital base and a sizable boost from the tax reform bill, offers the potential for per-share earnings of $9 in 2019 or 2020, up nearly 70% from last year's (2017) per-share earnings of $5.33.
Despite this large cap stock pick’s problems, its brand and core franchise remain strong: The restructuring efforts are beginning to show promising results although the pace remains slow. Costs are coming down, the company is seeing better net inflows, overall management is tighter and capital raises have bolstered the balance sheet. While the shares carry significant risks due to the leveraged nature of operations and its sensitivity to the capital markets, we see considerable upside potential if the turnaround is successful.
It’s been a remarkable turn of sentiment for banks since early last year, when we wrote “Everyone Hates the Banks” in our February 2016 issue. At the time, not only was the stock market selling off, but bank stocks were falling even faster. Investors were worried that a weakening economy would delay the Fed’s interest rate hikes and increase loan losses, particularly from the energy sector--both of which would crimp banks’ already tepid earnings outlook. Both the economic upturn that started in mid-2016 and the Presidential election were very favorable to banks. After continued price volatility in the first half of 2016, the KBW Bank Index surged 18% in the months ahead of the election. Following the election, bank stocks surged another 32% to their peak on March 1, 2017, a total gain of over 55% from their early 2016 level.
In nearly every case, the shares of a company in bankruptcy become worthless. In very rare cases, however, they can become great investments. W.R. Grace (NYSE:GRA) shares produced a 75-fold return, as an example. With California utility PG&E (NYSE:PCG) now in bankruptcy, the range of possible outcomes for its equity is wide.
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."