In his latest research screen, George Putnam, looked at stocks in the S&P 500 that were recently trading below their levels of 5 years ago; here, the editor of The Turnaround Letter, discusses at three underperforming retailers potentially set for better times ahead.

Steve Halpern:  Our guest today is the newsletter industry's leading expert on turnarounds; joining us is George Putnam, editor of the Turnaround Letter.  How are you doing today, George?

George Putnam:  Fine, thanks Steve.  

Steve Halpern:  In a recent research report, you look for potential turnaround ideas from among stocks that have underperformed the S&P 500 over the past five years.  Could you explain the criteria you considered in looking for investment ideas from this group?

George Putnam:  Sure.  We looked for S&P 500 stocks that were trading lower than they were five years ago.  

We're looking outside the energy industry because that sector has its own special issues right now.  We looked for companies that had good balance sheets, good management teams and generally strong brands.  

Steve Halpern:  Interestingly, among the stocks that met your criteria were a number of retailing names.  Before we look at any of the individual companies, could you comment on your general outlook for the retailing sector and perhaps touch on why you think some of the names appeared in this search.  

George Putnam:  Well the retailing sector is undergoing very fundamental change as people move away from the bricks and mortar mall doors to buying more and more online but that's not going to wipe out all of the old-fashioned retailers.  

Starting the middle of 2015, investors just moved away from retailers en masse and a number of them are trading at about half the level they were a year ago.  We thought some of the higher quality names that definitely will be survivors looked interesting.  

Steve Halpern:  Now one retailer that appeared on your potential turnaround list is Nordstrom (JWN).  What makes this an attractive situation?

George Putnam:  Well they have always been considered a high quality retailer.  They have a good management team, good balance sheet.  

They've recently opened up a new low price outlet that's called Nordstrom Rack, which seems to be getting lots of traction and they have a decent dividend.  They're going to be around and I think they are undervalued right now.  

Steve Halpern:  Another luxury retailer that meets your criteria is Tiffany (TIF), the well-known jewelry company.  What's the story here?

George Putnam:  Well they have one of the strongest brands in the whole retail sector.  High-end jewelry is much less vulnerable to online sales.

People want to go in and see it, or hold it, and try it on and they have a good store base with good locations.  They're very popular with overseas visitors and they're beginning to expand overseas.  Again, a solid dividend.

Steve Halpern:  Turning to a less upscale sector of the retail world, you also see turnaround potential at Staples (SPLS).  What's happening here?

George Putnam:  Well they are by far the largest player in the office products sector.  

They really invented the category of a separate office products store but it has become very competitive as Amazon.com (AMZN) and Wal-Mart (WMT) and others are moving into that space but Staples has the scale to be a very successful player.  

They attempted to merge with a number three player in their space, Office Depot (ODP), and it recently got shot down by the courts with the result that the CEO of Staples resigned.  

I think with a new CEO -- and not being absorbed with a potential merger -- they can really focus on making money from their strength in that sector and they have a very nice dividend around 5%.

Steve Halpern:  Again, our guest today is George Putnam, editor of The Turnaround Letter.  Thank you so much for taking the time today.  

George Putnam:  Anytime, Steve.  You're very welcome.  

By George Putnam, Editor of The Turnaround Letter