Why Are So Many Turnarounds Failing? (EK, PFE, RAD, TYC)

We compiled a list of many companies that just haven’t been able to turn themselves around.  On some we offered a road out and on others we feel sorry for the management because getting out of the holes that the companies have dug just might not be possible.

Most of these that were covered ended up being tech stocks of some sort as many of those have remained in the gutter. But there are many major economy stocks that are underperforming against their potential.  These non-technology companies in here still have a shot at executing a turnaround, but after years of failure you can imagine an activist or worse might start rearing its head.  These are not at all the only turnarounds that could manage to turn their ships, but these are some that we covered.

Eastman Kodak (NYSE:EK) is in a pickle and frankly we are shocked that shareholders haven’t revolted against Antonio Perez as CEO.  He was one our CEO’s TO GO for 2007, although we didn’t add him on the 2008 list.  This company has to rapidly implement its layoffs and restructuring rather than dribbling it out over a 10 year period.  They need to go back after more of the digital space.  They are trying, but nowhere near enough.

Pfizer (NYSE:PFE) has seen its share of skepticism.  It has been dead money and the new CEO is running out of “getting used to the job” time.  What is interesting is that a boost could come straight from a couple of acquisitions of companies with blockbuster drugs about to hit market.  Their drug pipeline might also not be as bad as we think. If the company gets off its duff, it could be one of the better drug companies with upside.  It was also reviewed under our 2008 Dogs of the Dow stocks.

Rite Aid (NYSE:RAD) has been another utter and complete failure of a turnaround.  This new CEO is actually very well respected and very well thought of.  She also didn’t make up excuses in the last two reports as to fake reasons for a failure.  She needs to make 2008 the year of execution of a turnaround.  It is possible.  This was also Jim Cramer’s #2 Speculative Stock for 2007.

Tyco International Ltd. (NYSE: TYC) is a turnaround that even though it started its turnaround has only managed a 360.  Its Tyco Electronics (NYSE: TEL) and Covidien (NYSE: COV) spin-offs have yet to rapidly reward shareholders.  The good news is that by early 2008 we will have at least two quarters of operations under the belt at each unit.  After that we expect that analysts will be able to adequately make their decisions on how to assign earnings targets.  The Tyco-stub is either one hell of a value stock, or it’s just a value trap.  We’ll know soon. 

These stocks may all be covered in newsletters because many now fit in the 10 STOCKS UNDER $10 newsletter category and many fall under the Special Situation Investing Newsletter category. 

On a separate note, we gave two different groups of stocks whose shares could actually double in 2008.  Our first list was of the more active names that are low-priced, and our second list was the screened group of stocks that was of known stocks that are just not quite as actively traded.  Lastly, we also gave a list of stocks that could drop another 50% in 2008 if these operators stumble or others that just don’t get their you know what together.

2007 had its share of great IPO’s and stinky IPO’s.  We showed a solid list of IPO’s that performed with stellar returns that came public in 2007.  And of course there is that smelly and stinky list of IPO’s that lost more than half of their value since coming public in 2007 as well.  Believe it or not, some of these could be winners if they manage to do the right thing.

We issued a GUIDELINES for turnarounds.  For starters we avoided financial stocks, lenders, housing related, autos, and most retail names because the problems there are so bad that they will get fixed when the industry pressure allows them to get fixed.  Those might continue there march south until finally too much is too much, and while we feel that may be close we aren’t hanging our hat on any date yet.  It just hasn’t worked.

You can join our free email distribution list for previews on other IPO’s, spin-offs, reorganizations, restructurings, merger-arb, speculation, and other aspects of M&A.  Here you may get some forethoughts on developing situations before the full data is published.

Jon C. Ogg
December 29, 2007