What did The Turnaround Letter see in these companies that other did not?

The four companies below achieved fantastic returns for The Turnaround Letter subscribers but what did George see in these companies that others did not? The answer lies in two key components of turnaround investing: being able to separate those companies that will recover and return to favor from those that won’t and not being afraid of turnaround situations. Of course, George does not always get it right, and The Turnaround Letter has had its share of losers over the years; but these four companies are indicative of some of the things that George looks for that other analysts often miss.

Flextronics
Recommended in January of 2009 and closed out in January 2011 with a 247% return. 

George saw how Flextronics was positioned nicely within its industry. It had an “A” list of customers and a strong enough balance sheet to make it a survivor almost regardless of how long and severe the economic slowdown that we were in at the time lasted. It had the number one or number two position in just about all of its principal markets and the global reach that allowed Flextronics  to provide high quality service at a very competitive cost. Realizing the stock had dropped 80% since the beginning of 2008 George saw this as a great opportunity to buy in. 

In January of 2011 George recommended selling Flextronics at $7.87 a share. He felt it was time, after a nice run, as Flextronics is dependant on continued growth in a notoriously volatile tech sector. 

Teradyne, Inc.
Recommended in December of 2008 and closed out in February 2011 with a 328% return.

Investors reacted ferociously to the 2008 slowdown in worldwide semiconductor production which drove the Teradyne’s stock price down to below $4/share. Realizing that semiconductors are key building blocks for most electronic products and that  the industry tends to go through wide cyclical swings, George felt purchasing a semiconductor testing company like Teradyne could be a safe way to profit from the next upturn in the semi-conductor market. Testing is a key element of semi conductor production so the testing equipment producers will certainly prosper with a market turnaround. With a strong management team and a strong balance sheet with little or no debt, Teradyne had all the makings of a turnaround candidate.

In February 2011 George recommended selling Teradyne stock at $16.23 after a very nice run. 

On Assignment
Recommended in January of 2004 and closed out in August 2011 with a 99% return

On Assignment, a healthcare and laboratory sciences staffing provider, had a nice run from 1992-2000 when stock prices hit a high of almost $35 but a faltering economy and difficulty absorbing a 2002 acquisition drove the stock price down to around $5 in late 2004.  George recognized that On Assignment had developed into a leading player in an otherwise fragmented industry and this combined with favorable long-term industry fundamentals virtually assured the demand for their services would continue to rise in the foreseeable future.  Throw in the fact that the company had a very solid balance sheet with a current ratio of five to one and $35 million in cash and you have all the makings of a nice turnaround situation. 

In August of 2011 George recommended selling the stock at $10.24 per share because he was concerned about the possibility of Washington aggressively going after Medicare, Medicaid and other healthcare expenditures.

Williams Company
Recommended in June of 2010 and closed out in March of 2011 with a 92% return

Williams Company is a major, integrated natural gas company that produces, gathers, processes and transports natural gas throughout the U.S.  The company’s debt burden from years of expansion brought them close to bankruptcy in 2002 and drove the stock down below $10 from above $40 just six months earlier.  George recognized the temporary imbalance of natural gas supply and demand and felt Williams would be nicely positioned in the industry as the drop in prices had driven some of the weaker players out of the market.  Additionally, on the demand side, natural gas is viewed as the preferred energy source for the future because of its lower environmental impact and domestic availability.  George felt that Williams not only had the financial strength to withstand the current downturn but to grow and prosper when the natural gas prices started creeping up.  

In March of 2011, George recommended selling Williams company at $30.36 a share as the company announced plans to split into two parts.                      

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Amazon = US GDP 1970

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. Read More.

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.

Read More.

Turnaround Letter Stock Pick Named Top Performer of 2017

 

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What Last Year's Top Stock Pickers Are Buying in 2018

 

This Forbes write-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."