While the market remains exuberant over some of the newest companies, including Netflix (21 years old), Square (9 years old), and Google (20 years old on September 4), it’s difficult to say if they will be around in another 10 or 20 years. After all, previously hot new companies like Blockbuster, AOL and privately-owned MySpace all vanished after relatively short lives. Some companies, however, have stood the test of time.
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.
This month's purchase recommendation is a food company in a rapidly-growing segment, yet with its survival threatened by operational and strategic difficulties. An entirely new leadership team with impressive experience in critical areas is moving aggressively to bolster the business while pursuing new growth opportunities. While its challenges and risks are real, investors seem to be more focused on its past than on what the company is doing now to improve.
The outlook for agriculture commodity producer Mosaic Company (NYSE: MOS) is driven largely by commodity prices, and to a lesser extent by profit improvements at the Vale Fertilizante operation it recently acquired. Improving pricing in both phosphates and potash along with its likely strong synergies with Vale Fertilizante are providing a much better outlook for the company in 2018.
Specialty snack maker Amplify Snack Brands (BETR) agreed to be acquired by Hershey’s for $12/share, a 71% premium over its prior closing price. We highlighted Amplify as a strong turnaround candidate in October at its then-current price of $7.23.
Chipotle's CEO signals new perspective, no longer “business as usual” and that the board is serious about making improvements. Other boxes already checked include strong cash flow and no debt; but there are also as-yet unchecked boxes: outsider CEO with a credible strategy, attractive valuation. Without attractive valuation, Chipotle may never justify an investment.
These value stock opportunities have impressive financial traits: strong balance sheets, prodigious cash flows and generous payouts to shareholders. Strategically, they have powerful brands, strong negotiating leverage with grocers, impressive distribution networks and increasingly talented and fresh leadership teams.
Post Holdings shares have vastly outperformed Kellogg's and the S&P500 over the past three years. Similarly, Post's crisp revenue and earnings growth has left Kellogg's looking soggy. However, the two companies' prospects may diverge again, but in a different direction. In this note, we analyze Post Holdings' recipe for its strong returns, assess what has held Kellogg's back and explore Kellogg's outlook compared to Post Holdings' to answer the question: Should Kellogg's shareholders have Post Holdings envy?
Diners may seem like a fickle group: One day everyone flocks to Restaurant X as the place to eat, only to quickly replace it with the next fad, Restaurant Z. The reality is different, though. Most people like to go to their regular restaurant again and again, and it’s only when the restaurants basically tell their customers “please don’t come here anymore” by offering unappealing food, poor service, higher prices and tired surroundings that the customers look elsewhere. This article identifies several restaurant turnaround stocks with well-known franchises, reasonable balance sheets and attractive valuations. Several also have new management teams. With some patience, these stocks might serve up some tasty returns for investors.
Amazon joined Apple in reaching a $1 trillion market capitalization. $1 trillion is about the same as the total value of New York City property and the total value of loans at JP Morgan, the nation’s largest bank in terms of assets. Jeff Bezos’ $160 billion stake would place him (personally) as the #33 largest company in the S&P 500 in terms of market cap, next to Coca-Cola, Disney and Netflix. We aren’t bold enough to predict whether the shares will continue upwards or if they are in a bubble reaching maximum inflation. Setting aside for a moment their investment prospects, let’s admire the truly remarkable milestone that these two companies have reached.
EV/EBITDA: What Is It & Why Are We Using It More?
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."