Despite the impressive new management, these shares fell sharply. This value stock's shares trade at a relatively modest valuation of 8x current year EBITDA. Although waiting for a five-year plan to unfold may seem as dull as watching cement dry, the shares pay an appealing 3.7% yield and should provide rock solid gains when the recovery is completed.
The turnaround at media and entertainment company Viacom (NYSE: VIAB) rests on an improving balance sheet, combined with higher margins and revenue stability/growth, led by new CEO Robert Bakish. First quarter 2018 results showed progress in the first two, but some slippage in revenues.
Telecom equipment maker Nokia (NYSE: NOK) reported improved fourth quarter results. It appears increasingly ready to capture and profit from the growing opportunities in the 5G technology that will replace the current 4G/LTE wireless technology.
Ford Motor (NYSE: F) reported mixed results for the fourth quarter and full year 2017, reiterating its pre-announced results and guidance from the Detroit auto show earlier this month. Their turnaround under new CEO Hackett is in the early stages and remains on track. We don't anticipate meaningful financial progress for 2018 although the changes underway at Ford should become more visible.
Subsequent to the release, Ford announced that Ford Credit's current CFO, Marion Harris, will become a senior officer at Ford Mobility as that group ramps up its staffing and funding. Also, Ford Mobility acquired Autonomic and Transloc, two technology firms that will help accelerate Ford's mobility efforts. We like the urgency and attention that this group is now receiving.
Document technology company Xerox (NYSE: XRX) reported better 4Q17 revenues and profits. More strategically relevant: It announced that it will combine with long-time joint venture partner Fuji Xerox. Xerox shareholders will receive a cash dividend of approximately $9.80/share and will own 49.9% of the combined company. The combination makes a lot of sense to us as the Fuji Xerox partnership created an added layer of expenses and complexity that hobbled both its own success and Xerox Corp.'s performance. We're not entirely convinced that this deal will be completed, and the financial picture of the new combined company remains unclear; so we moving Xerox shares to a HOLD for now.
The update from Ford Motor (NYSE: F) in advance of next week's earnings report indicates that the company has a solid plan and financial strength (both earnings and balance sheet) to make its transition to higher profits and newer technologies. We believe the transition will be successful but will take time. Key variables are whether investors have patience to see it through, and will there be an auto industry down cycle that interrupts the transition.
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.
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.
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."