George Putnam: Top Picks Update

07/16/2014 10:00 am EST


George Putnam

Editor, The Turnaround Letter

Each January, we ask the nation’s top newsletter advisors for their favorite stocks for the new year. Now that we have reached mid-year, we are following up with some advisors whose performance was most noteworthy. Here, we speak with George Putnam, editor of The Turnaround Letter.

Steven Halpern:  Our guest today is George Putnam, editor of the Turnaround Letter.  How are you doing today, George?

George Putnam:  Fine, thanks Steven.

Steven Halpern:  Over the years, you’ve consistently been among the top performers in our annual top picks reports, and this past January you chose two turnaround stocks for 2014, both of which have done exceedingly well.  First let’s look at your conservative pick, which was FelCor Lodging Trust (FCH), which is up 27% as of mid-year.  What was your original rationale for this pick, and what do you believe accounts for its strong performance?

George Putnam:  Well, originally, we liked it because it was refocusing its business.  In the mid-2000s, it got a little unfocused and bought a lot of hotels in a variety of markets without much of a strategy. 

Since the downturn in 2008, they realized they had to not only fix the balance sheet, but that they should focus in certain higher end markets; so they’ve been selling hotels and focusing on the more upscale properties. 

It has been a work in progress for some time, but they’ve sold off several hotels this year at very good prices, and also refinanced some debt, which has helped the bottom line; so all of that has really moved the stock up quite nicely.

Steven Halpern:  Now your more speculative pick for 2014 is a company called Accuride (ACW), and the stock is now up 35%.  Could you tell us your thinking behind this recommendation, and again, what has happened with the company this year?

George Putnam:  Sure.  There were two pieces to it.  Accuride makes wheels and other similar components for large trucks and other large vehicles; and first of all, the new truck market has been weak for some time, which has hurt them; and secondly, they had some problems on the operational side, so even when they got orders, they couldn’t fill them as fast or as well as the customers wanted.  But half of those issues have been fixed. 

They’ve fixed all of the operating concerns, so they are now producing high-quality wheels and other products on time; but the demand for large trucks has not rebounded as fast as everyone had expected, so the sales haven’t risen that much, but the margins have improved a lot, which is improving the bottom line; and I think that’s what’s moved the stock up so far. 

Steven Halpern:  Now, for those who followed your initial recommendations for these stocks, would you still recommend holding the shares, and also, for new investors just hearing about them, would you recommend initiating new positions?

George Putnam:  I think FelCor has a little further to go so, if you own it, I think I’d continue to hold it; but I think it may be leveling off.  I don’t think we’ll see the sort of momentum that it had earlier this year going forward; so I would hold it if you own it, but I don’t think I would buy new positions in it right now. 

Accuride, on the other hand, I think, has a long way to go, and I would certainly hold it and I would buy new positions as well.

With the operational issues solved and the margins much improved, when new truck sales do pick up—and I think they will have to, because the fleet of trucks in the US has been aging over the last several years, and eventually they’re going to have to start buying new trucks, which will help Accuride—and when that happens, with the improved margins, you could see the profits improve very sharply.

Steven Halpern:  So, before we let you go, perhaps you would be kind enough to share a name or two that you would highlight as new ideas for turnaround investors looking out towards year end.

George Putnam:  Well, one name that we like is called Ply Gem Holdings (PGEM), it makes windows, and siding, and other products for new home construction; and that’s a sector that’s been beaten up really since 2006, and it’s really just beginning to come back.

Ply Gem went public a while ago in the low 20s; and because of a number of factors, it has disappointed investors in the short-term, so the stock is now trading for about half of its IPL price.  But we think that housing will pick up and that when it does, that Ply Gem will do very well, so that’s one that we like.

Steven Halpern:  Well, thank you for joining us today.  We really appreciate your insights.

George Putnam:  Thank you, Steven.

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