Top Picks 2019: Newell Brands and Midstates Petroleum (NWL) (MPO)

01/28/2019 5:00 am EST

Focus: STRATEGIES

George Putnam

Editor, The Turnaround Letter

My top pick for 2019 is consumer products firm Newell Brands (NWL); as a more speculative idea, my pick for this year is Midstates Petroleum (MPO), suggests George Putnam, editor of The Turnaround Letter.

Newell Brands is a collection of well-known consumer brands — including Rubbermaid food storage and home organization products — that is undergoing a complete overhaul.

Under the capable watch of activist investor Starboard Value, which has overseen impressive changes at companies like Darden Restaurants (DRI) and Advance Auto Parts (AAP), Newell is divesting 35% of its operations over the next year or so while it improves the margins and cash flow from the remaining businesses.

Cash proceeds are already paying down part of its $9.6 billion in debt and will eventually retire up to 40% of its shares, while management plans to maintain its healthy dividend. With its turnaround well-underway, we think Newell — our top pick for conservative investors — should have a strong 2019 performance.

Midstates Petroleum is a small-cap oil and gas producer recently emerged from bankruptcy and now has a nearly debt-free balance sheet. Its board members collectively represent over 38% of the company shares. 

The tight-fisted new leadership has pared spending to the point where it is approaching break-even free cash flow. The company’s hedges offer it some protection from the recent drop in oil prices. 

As a potential buyer of oil fields, low oil prices should reduce the prices Midstates might pay for future acquisitions. Currently trading at 2x EBITDA, Midstates looks poised for a strong rebound in the coming year.

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