Signet Jewelers (SIG) — my Top Pick for conservative investors — is the world’s largest diamond jewelry retailer, with 3,284 stores and kiosks in the United States, Canada, United Kingdom and Ireland, notes George Putnam, editor of The Turnaround Letter.

Major brands include Kay, Zales and Jared. For years, Signet was managed as a growth company. Sales nearly doubled from 2011 to 2015, driven by healthy same store sales, new stores, and acquisitions including the $1.5 billion purchase of Zales in 2014.

However, easy financing terms from its in-house credit operations fueled much of this growth while it masked problems in the neglected core retail business.

The sparkle wore off when same store sales turned negative, credit losses mounted and the leadership faced accusations of widespread discrimination against its female employees. Efforts to outsource the credit operations only seemed to make matters worse.

Signet shares remain heavily out of favor, down 85% from their late 2015 peak. However, a new leadership team (since late 2017) and a revamped board are overhauling Signet’s operations, including offering more relevant products and services, closing stores in weak malls, boosting its ecommerce business and streamlining its costs.

The credit operations have been fully outsourced and the related decline in sales appears to have been cycled through. Recent results indicate good progress although the turnaround is only about half-completed so far.

Signet has a reasonable balance sheet and generates plenty of free cash flow to cover its dividend, currently producing a 7.3% yield. The shares trade for an appealing 4.8x EBITDA multiple. For disclosure, employees of the publisher of The Turnaround Letter own shares of this stock.

(Editor's note: George Putnam chose General Electric (GE) as his Top Pick for 2019. With the shares up 54%, the advisors says, "We continue to have a "buy" rating on GE. The upcoming completion of the BioPharma sale will greatly improve GE’s liquidity, while progress on other priorities should lead to higher earnings and lower risks.")

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