George Putnam III tips to spot turnaround stocks for solid returns
George Putnam III says most brokers and Wall Street analysts avoid turnaround situations because they have been burned by the stock on the way down.
According to Putnam, most investors chase the same stocks which are followed by hundreds of highly trained analysts and so it is hard to outperform.
So he advises investors to seek out unloved, down-and-out turnaround situations as when these stocks eventually do come back, they can soar as investors pile into them.
«Our approach is simple. We avoid the „blue chips“ and „hot“ stocks that most investors are stampeding into. 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,» he wrote in his Turnaround Investment Letter.
Who is George Putnam III?
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Putnam is President of New Generation Advisors, LLC, an investment adviser that focuses on distressed securities. He is also Chairman of New Generation Research, Inc., which publishes information about bankruptcies and troubled companies. He founded both companies in the late 1980’s.
Putnam came up with tips and principles which may help investors spot turnaround stocks for solid returns. Let's look at these tips.
1. Be willing to go against the crowd.
Putnam says by their nature, turnaround stocks are unpopular and that’s why they have so much profit potential.
«If you wait until they are popular again, you will miss most of the gains. For example,
