Bankruptcy/Chapter 11 / Bonds

Why turnaround investing?


Why turnarounds? The question should be...why not turnarounds?


What is turnaround investing?

Turnaround investing is the process of looking for investment opportunities in down-and-out companies that are poised to rebound: companies that Wall Street unjustly hates for one reason or another. Turnaround opportunities lie in companies that for various reasons have dropped in share price but are about to turn themselves around and when they do, investors who get in near the bottom can ride these investments for hefty gains on the way back up. These are what we call “maximum potential” investment opportunities. They could be big name stocks with emotionally-battered prices or restructured bargains fresh out of bankruptcy--with healthy balance sheets and huge growth potential.  

There are many reasons for the tremendous profit potential in turnaround situations, but most of them relate to the basic fact that most investors, including many “sophisticated” institutions, are afraid of turnaround situations. Most brokers and Wall Street analysts avoid turnaround situations because they have been burned by the stock on the way down. This means that they sell potential turnaround stocks too soon--as soon as the company’s troubles become known--and they buy them back too late, only after they are certain that the company will recover fully. When these investors bail out that is usually the time to buy in!

What is The Turnaround Letter?

The Turnaround Letter is a monthly newsletter and associated website that focus on distressed and turnaround investing. The first Turnaround Letter was published back in 1986 and it remains one of the longest-standing and most successful newsletters on the market today.

"Turnaround investing" is now an industry buzzword but George Putnam, III and The Turnaround Letter pioneered this concept more than 30 years ago and they have been successfully practicing it ever since. Mr. Putnam is one of the nation's leading experts on bankruptcies and turnaround investing, and his keen insight has resulted in The Turnaround Letter being regarded as one of the top-performing investment newsletters on the market. The Turnaround Letter's 15-year annualized return rate (as of 6/30/18) is 12.5%, versus the S&P 500's 9% for the same period.

What is The Turnaround Letter's approach to investing?

Our approach is simple: We avoid the "blue chips" and "hot" stocks that most investors are clamoring to buy. Instead, we search out companies that have had some problems and are temporarily out-of-favor but are in the process of turning around. These stocks seem like laggards when we first identify them, but as the turnaround becomes more evident, Wall Street will jump into the stock and push the price up--often dramatically.

Our approach has always been not to follow the crowd. We seek out unloved, down-and-out turnaround situations. The Turnaround Letter’s approach to investing is designed to get you in before the good news is out: when prices are lowest and profit potential is highest--and before big investors realize their mistakes and swarm back in and bid prices (and profits) out of sight.

Turnaround stocks operate in an “inefficient” market. Brokers drop them; analysts ignore them and the companies themselves rarely make news and avoid publicity. We focus on stocks that most other investors ignore…down and out companies poised for a rebound.

Why is turnaround investing a good strategy for me?

The typical individual investor does not stand a chance investing in the “blue chips.” Their market is too efficient. How can you possibly compete with armies of trained analysts who instantly react at every industry and market blip? The Turnaround Letter brings you rebound stocks that will not be short-circuited by giant pension funds, banks, insurance companies and by Wall Street in general. But once these stocks begin to regain favor and the big guys jump back in you have your best opportunity at substantial gains.

Isn't investing in turnaround situations risky?

On the contrary, our approach minimizes risk as we believe there is much less risk in a "troubled" stock that has already been hammered down by the market than in a "hot" stock that is trading at 30 or 40 times earnings. The hot growth stock will come crashing down if there is just a little bad news (or perhaps even good news that wasn't quite as good as Wall Street expected), but a stock that is already perceived as troubled may hardly budge on more bad news. Most stock losses come from high-flyers that crash but in turnaround stocks investors have anticipated the worst, which is why their prices are so low. A little more bad news is unlikely to affect them.

Turnaround investing can be very profitable, but it is not without pitfalls. Year in and year out many of the biggest winners on Wall Street are troubled companies that turn themselves around and return to favor with investors. Obviously, not every troubled company is going to turn into a success story. Some of them liquidate and others languish with depressed stock prices for years. Therefore, the key to turnaround profits is separating those companies that will recover and return to favor from those that won’t.

The Turnaround Letter brings you stocks of large, well-know companies. We look for a solid core business that they can rebuild around plus a good brand name or franchise, low debt, decent cash flow and good dividends. We identify established companies just before they re-emerge with new profitability--just before they return to favor with brokers, analysts, institutions and the public. We do not guide you to risky start ups, new issues, “penny” mining stocks or speculative options or futures. Additionally, turnaround situations often can move independently of market trends, giving you opportunities for substantial profits in bull or bear markets.

However, you must choose your potential turnarounds carefully. A substantial number of troubled companies never do recover. My research shows that roughly one-half of all publicly-traded companies that enter Chapter 11 bankruptcy proceedings are successfully reorganized. There are plenty of turnaround opportunities out there…as long as you know where to look.


Identify & Profit from Distressed Investing

Free Report: Turnaround Investing Mistakes

Turnaround Investing Blog

Turnaround Investing Blog

Is there value in bankrupt PG&E’s stock?

In nearly every case, the shares of a company in bankruptcy become worthless. In very rare cases, however, they can become great investments. W.R. Grace (NYSE:GRA) shares produced a 75-fold return, as an example. With California utility PG&E (NYSE:PCG) now in bankruptcy, the range of possible outcomes for its equity is wide.

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


stock market advicex


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."