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.
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.
This company is a consumer products conglomerate with a diverse portfolio of widely-recognized brands. The company’s growth-by-acquisition strategy has succeeded in making them a bigger company. But it hasn’t made it more valuable to shareholders.
At first glance, the shares have decent appeal as a turnaround investment. Looking deeper, however, the fundamentals are not as strong and stable as they appear. Surplus cash flow is tight, a key driver is weakening, it is increasingly reliant on China and has other nagging issues. We don’t see the new CEO as a catalyst for change. Despite the “first glance appeal”, Tupperware isn’t a good fit as a turnaround stock.
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."