Only two days after joining the Dow Jones Industrial Average, Walgreens Boots Alliance fell 10%, as Amazon is entering the pharmacy business with its PillPack acquisition. This might not have been the effect that the S&P Index Committee had in mind when it chose Walgreens to better measure the economy and the stock market. Indices are seen as representing “the market” but they are baskets of individual stocks with all the risks these stocks bring.
We are raising our price target (Buy limit) on shares of technology services company Conduent (NYSE: CNDT) to 24 from our previous target of 20. The leadership is removing the Xerox bloat, gradually replacing it with a reinvigorated and focused operation. The company has more work ahead to reach its goals, yet the path seems reasonably achievable. While Conduent still has considerable execution risks along with competitive, technology and other risks that could impede or sidetrack its turnaround, we think its future looks bright.
We continue to rate CNDT shares a BUY and increase our Buy limit to 24.
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.
Xerox Corporation (NYSE: XRX) announced that it has terminated its proposed combination with Fujifilm. In addition, half of Xerox’ ten-person board is being replaced including now-former CEO Jeff Jacobson. The new chairman is expected to be Keith Cozza, currently the head of Carl Icahn’s company Icahn Enterprises. We agree that the deal was too murky and undervalued Xerox.
Shares of transactions processor Evertec (NYSE: EVTC) have jumped 9.5% since they reported estimate-beating 1Q18 results and raised their full-year 2018 EPS guidance by 19%. Economic conditions in Puerto Rico are improving and the company is executing well.
With cash balances greater than their debt, these companies have the financial flexibility to weather the challenges without great concern about principal or interest payments. And once the storm clouds clear, shareholders could see a sizable profit.
The market believes GameStop (GME) is headed toward a relatively quick demise; however, new CEO Mike Mauler's retrenching to bolster its core business is a good strategy. At 2x EBITDA, the lowest multiple in the market for any stock above an $800 million market cap, the shares can do well if the company can slow the decline or if the company is acquired. We don't see a liquidation or transformative acquisition as likely. For highly-risk-tolerant investors, the shares' extreme discount offers the potential for outsized returns.
In July, 1986, exactly 32 years ago, George Putnam sent the first Turnaround Letter to subscribers. Technology back then seems like the Stone Age, with hard copy research and primitive CompuServe dial-up service. Wall Street ignored turnaround stocks back then and continues to ignore them today. While technology has changed immensely in 32 years, The Turnaround Letter’s philosophy of selecting out-of-favor companies on the verge of turning around hasn’t changed. Our timeless process helped driven The Turnaround Letter’s independently-verified market-beating returns.
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."