My contrarian investing strategy has always relied on a clearly defined, logical and straight-forward investment philosophy for its stock picks--which, happily, has resulted in market-beating results over the years. Among other key attributes, I focus on the importance of quality leadership--especially in a turnaround situation.
Although it is often leadership mistakes that lead a company into trouble in the first place, genuine management skill will be needed to extricate. Frequently, a change in management is a good sign in a turnaround situation. The announcement of the hiring of a turnaround guru is not, however, a sign that investors should immediately buy the company's stock: Successful turnarounds often take quite some time, and there may be more bad news still to come. Investors interested in a turnaround stock should view a promising management change as part of a bigger picture, which could indicate other favorable signs for the company's future.
You can see how I put this tenet to work in my April 2013 purchase recommendation: Chiquita Brands International (CQB). This small cap agricultural icon has a lot of the features I look for in an ideal turnaround investing candidate: powerful brand recognition, positive consumer trends and effective restructuring efforts. In addition to these promising attributes, Chiquita recruited C.E.O Edward Lonergan--who has a proven track record of successful turnaround leadership--in late 2012. Even before Lonergan's arrival, Chiquita had already realigned management to reduce costs and improve efficiencies.
At the time of my April buy recommendation, Chiquita was priced at $7.76, and I recommend its purchase up to $12. Last month after reporting a strong quarter, Chiquita moved up through its maximum buy price. Because I believe management's refocusing strategy is working, I subsequently raised the maximum buy price to 15. CQB closed at $11.40 on 10/16/13--a 47% price increase. I'll continue to monitor this stock at as part of The Turnaround Letter's current portfolio.