Turnaround stockTime to roll the dice on turnaround candidates?
By Angela Barnes
Friday, September 10, 2004 - Page B12
CAE Inc. (CAE-TSX), Bombardier Inc. (BBD.B-TSX) and Nortel Networks Corp. (NT-TSX) have all made Investor's Digest of Canada's latest list of turnaround candidates, along with Interpublic Group of Cos. Inc. (IPG-NYSE) and Royal Dutch/Shell Group or its parent, Royal Dutch Petroleum Co. (RD-NYSE).
Investors may want to pay attention, judging by the performance of the previous batch of picks, made in May of 2003. That portfolio is up an average of 213 per cent and consists of: E-L Financial Corp. Ltd., up 54 per cent; LM Ericsson Telephone Co., up 285 per cent; National Semiconductor Corp., up 61 per cent; Cedra Software Corp., up 648 per cent; and Hewlett-Packard Co., up 18 per cent.
To make the list, the companies had to be experiencing difficulties and be under new management teams. Larry MacDonald, IDC's investment writer, figures the appointment of ex-Bombardier chief executive officer Robert Brown as CAE's new leader could prove a turning point. Mr. Brown's contact with most senior executives in the global aviation business and his years as a top civil servant should help the company win contracts and curry favour in government circles, he added.
As for Bombardier, whose shares hit a 10-year low of $2.55 in mid-August, Mr. MacDonald says: "This cheap price, along with CEO Paul Tellier at the helm, makes Bombardier interesting."
Meanwhile, Mr. MacDonald said he was intrigued by the change in direction that Nortel's CEO William Owens outlined in the company's financial release in mid-August. Mr. Owens wants to make Nortel more attuned to the market and concerned about the bottom line. Research and development expenses will be cut. "That's not necessarily a bad thing, because it should allow more cash flow to show up in the financial statements, the kind of stuff the market wants to see more of these days," Mr. MacDonald said.
Interpublic, the world's third-largest advertising firm, made the list because it appears to be on the comeback trail and because the quality of its earnings has improved. Also, advertising markets seem to be recovering, he noted. And Royal Dutch got the nod in part because of the appointment of turnaround expert Peter Voser as its chief financial officer. The stock also gives the turnaround candidate portfolio exposure to the energy sector.