Last month we highlighted several turnarounds in Europe and Asia. This month we look north to our friendly neighbors in Canada. While its public equity market as measured by the respected Toronto Stock Exchange (total market capitalization of about $2.2 trillion and 1,500 listed companies) is considerably smaller than that of the United States, fascinating turnaround opportunities can be found there.
Like many stocks in the energy sector, master limited partnerships, or MLPs, remain out of favor. Fundamentally, strong energy demand along with healthy production growth means increasing volumes of crude oil and natural gas flowing through pipelines and a brighter future for many MLPs. Listed below are five MLPs that look particularly interesting to us right now.
The stocks discussed in this article have all fallen 70% or more from their five-year highs, and they all have one or more catalysts, while also having enough financial runway to allow a recovery to unfold.
Coal mining firm Peabody Energy (NYSE: BTU) remains heavily out of favor despite reporting strong 1Q18 free cash flow. The outlook for continued cash production remains healthy. Peabody shares trade at a highly-discounted 3.7x estimated 2018 EBITDA. We continue to rate shares of BTU a Buy up to 42.
Oil and gas drilling services company Weatherford International (NYSE: WFT) reported 1Q18 results indicating that the turnaround is underway. Further operational improvements plus upcoming asset sales should boost the company’s value while reducing its debt burden.
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."