Recently I was asked how my investing perspective changed over the 32 years of publishing The Turnaround Letter. It's a fascinating question because change is constant, and often beneficial (although that's not a given) in the business world. If change is the norm, can investing principles stay constant? I firmly believe that they can.
As we write this just before the middle of the year, the S&P500 has gained 2.5%, a relatively modest result compared to its impressive returns since 2009. It is hard to pinpoint any major drivers for the market performance.
Bankruptcy activity has slowed somewhat in the first half of 2018. As long as the debt markets remain robust (some might say “frothy”), the number of large public bankruptcies may stay low. However, we expect to see bankruptcy activity pick up significantly in the not-too-distant future.
Erin Energy (F/D/B/A Camac Energy and Pacific Asia Petroleum) and three affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, case number 18-32106.
Seadrill filed with the U.S. Bankruptcy Court a Second Amended Joint Chapter 11 Plan (as Modified) of Reorganization, which notes, "On the Effective Date, the Debtors shall consummate the Equity Rights Offering and the Note Rights Offering in accordance with the Rights Offering Procedures.
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."