Everyone likes a corporate comeback, but it means that certain investors suffer heavy losses as a firm first falls from grace. This can happen because of bad management, a changing competitive market or other unfortunate events outside of a company's control. The subsequent recovery, if it happens at all, can take time. For a small handful of companies, however, the comeback returns a company to its former glory. Below is a list of the five best corporate comebacks in recent years where both the company's operations and share price experienced impressive rebounds. (We'll give you the clues you need to assess which stocks can make a turnaround. See Catching Comeback Stocks For Clients.)
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In one of the more impressive retail turnarounds ever, Best Buy saw a dramatic reversal of its fortunes between 1997 and 1999. This was reflected in a share price that rebounded from less than $2 to nearly $60 over the same timeframe. The growing pains started after a rapid growth trajectory in which the corporate culture was decentralized to leave each new store to function relatively on its own.
The company soon began to lose repeat customers on the inability to deliver a consistent sales experience throughout the entire store base. Management quickly turned to a more cohesive strategy of delivering a better sales experience and inventory controls to more efficiently track and purchase inventory across the entire company. Similar efforts to tie up every aspect of Best Buy's operations saved the company in just a couple of years and since then the company has grown to dominate the electronics retailing industry in the United States. It now has ambitions to replicate this success overseas.
Apple's reinvention was just as impressive and even more so given it operates in the rapidly changing technology industry. It was one of the first companies to introduce desktop computers and had a large market share in the 1980s. This market share was steadily eroded from the double digits to an estimated 4.6% in 1996. The company gained the undesirable status of a has-been in the industry as computers that operated on Windows came to dominate the market.
The introduction of the iPod in 2001 started a stunning reversal of fortune. It took a couple of years, but the stock took off in 2003 from less than $8 per share to a current $340 per share. The iPod and related iTunes store revolutionized the music industry, as has the iPhone in mobile phones and iPad for tablet computers for an impressive and lasting impact on three different segments of the technology industry.
A disastrous foray into credit derivatives sent one of the largest insurers in the world on the brink of collapse at the height of the credit crisis. Nearly $200 billion in government bailout funding was required and the company reported multi- billion dollar losses in 2008 to report some of the largest quarterly losses in company history.
Since that time, it has been in the process of selling off profitable overseas operations to pay back the government and become a truly independent entity again. The corporate comeback is reflected in a share price that dipped to $7 per share in March 2009 to a current $37. The shares reached nearly to low sixties on increased confidence that there will be significant value for common shareholders after fully paying back Uncle Sam. (Find out which catalysts can turn struggling stocks around to create a tidy profit. Check out Turnaround Stocks: U-Turn To High Returns.)
Tyco has enjoyed a low-key recovery to its operations after an especially tumultuous period in the early 2000s due to improprieties from former chief executive Dennis Kozlowski. Kozlowski ended up on the hook for improperly using hundreds of millions of corporate funds and the task to clean up the company fell to Ed Breen.
Breen spun off some key divisions of the firm which has resulted in strong returns for shareholders. Tyco's operations have performed well over the past few years as well and have shown steady profitability over the last two years.
Unlike its U.S. rivals, Ford avoided bankruptcy protection during the credit crisis. This means it didn't fall as far as Chrysler and General Motors. As a result, Ford's reputation remains intact and the company picked up market share. An improving economy since then has helped to further boost sales and profits, and the stock has risen from under $2 in early 2009 to a current $15 per share.
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The Bottom Line
Best Buy and Apple have experienced perhaps the most impressive corporate comebacks. Tyco has recovered fully, while AIG and Ford are still works in progress. Not all turnarounds work, as companies including Linens 'N Things, Sharper Image and Circuit City can attest to. The vast majority of companies see more modest challenges that they need to overcome, but those that face severe downturns and fully address the challenges can make big money for shareholders that identify the recovery potential. (So you've finally decided to start investing. But what should you put in your portfolio? Find out here. See How To Pick A Stock.)
Disclosure: At the time of writing Ryan C. Fuhrmann did not own shares in any company mentioned in this article.
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