Turnarounds and Bounce Bets

Over 80 stocks were featured in last year's Top Picks report. The very best performer? George Putnam. Here, the editor of The Turnaround Letter updates this top-performing stock pick and highlights some additional year-end bounce candidates.

Steve Halpern: We are here today with George Putnam, Editor of the Turnaround Letter. How are you doing, George?

George Putnam: Fine. Thanks, Steve.

Steve Halpern: Today, we're concluding a series of interviews with the top performing advisors from last year's Top Picks Report, and of the 81 stocks in that report, you had the number one performing pick, MGIC Investment, which is up about 215%. Congratulations.

George Putnam: Thank you very much.

Steve Halpern: Could you review the original reasoning for choosing MGIC last year and what has occurred during 2013 to account for the stock's strong performance?

George Putnam: Sure. Well, MGIC Investment Corp. (MTG), which insures mortgages—residential mortgages—was really hammered back in 2007, 2008, and it struggled to, sort of, dig out of the hole that it got in from all of the defaults that individual homeowners made on their mortgages.

But towards the end of last year, it raised some new capital to shore up its balance sheet and was showing signs that the past problems were really being handled, and so, the stock would turn the corner, and fortunately it did work out that way.

Steve Halpern: Now are these gains, that you think of, only those that occurred in the past, and people should be selling, or would you still recommend the stock, expecting better things to come?

George Putnam: No, I think the stock has further to go, because now that they've gotten the past problems largely behind them, they can focus on their new business, which has been going well and is highly profitable.

And also, people will finally recognize that this stock has a future, so they will be more willing to buy into it, so while it's done very well over the last year, I think it's got a fair amount further to go.

Steve Halpern: Now, as an expert in turnaround situations, you focus on very long-term fundamentals, often recommending a stock for years to come. But one exception to that pattern is, every December, you provide your subscribers with year-end bounce candidates. Could you explain that strategy?

George Putnam: Sure. Every year, around this time, you get a lot of selling pressure in certain stocks, and the pressure is really tied to the calendar. It comes from two sources.

Page 1 | Page 2 | Next Page The expert featured in this column, George Putnam, may or may not own positions in any investment vehicle mentioned here. The views and opinions expressed are his or her own.