I checked the markets Thursday morning and was surprised to see Saga (LSE: SAGA) as one of the biggest daily winners with an 8% rise.
But is it a time for optimism? An update on 19 June suggests it might be, pointing out positive progress at least in the firm’s insurance offer, even though the travel business is still under pressure.
Where’s the beef?
I want to pick up on something that my Motley Fool colleague Rupert Hargreaves said: “I’m cautiously optimistic Saga has turned the corner, and its new business plan is starting to yield results. If the company can keep this up for the rest of the year, it might be worth considering the stock for your portfolio.”
I think the second part of that is key (the “keep this up for the rest of the year” bit) and I will personally be waiting at least until I see how the whole year pans out.
In fact, I don’t put an actual timescale on what I want to see from Saga, because I’ve been bitten more than once when I’ve done that in the past — stocks I’ve liked from a recovery perspective have gone on to do even worse over a longer period than I’d expected before they started to get better.
I’m happy not to get in at the absolute bottom and not make the biggest profit, if it reduces my chances of a big loss. I might buy the turnaround, but not until it’s turned around.
Biggest fall
That brings me to Thomas Cook (LSE: TCG), and its fall from grace. On thing I do like about the company is it’s been trying to rectify its perilous situation fast. We haven’t had general hot air about examining costs (which companies should always be doing) or vague ideas about how it will look at its balance sheet.
No, the company is looking to sell off its tour operating business, if an approach from China’s Fosun should look good enough, and there have been multiple bids for its airline business.
As an aside, I reckon getting shot of an airline is a very good move. It’s a horrible business to be in, fully victim to costs beyond its control, and has no real way of offering any differentiation — people just want to get there as cheaply as possible.
Going bust?
In these troubled times, I struggle to see how Thomas Cook might extract anything close to a premium valuation for the assets it seeks to unload. And I really have no vision of what will be left of the company and what its valuation might look like.
We are looking at lowly-valued shares right now, after an 87% price fall over the past 12 months. But a fallen price is not necessarily a good price, and I’m not buying. I see Thomas Cook shares as priced to go bust, and I see a reasonable possibility of that happening.
