Beauty is in the eye of the beholder.
Investment letters that see potential in stocks deemed ugly or invisible by Wall Street offer opportunities for daring investors. The object of their affection may be a company in a financial swoon or a proven loser exiting bankruptcy. Perhaps it's an off-the-wall new issue or a small company beginning to gain steam.
Stock-pickers who dabble in these chancy selections are fearless, relying on gut-level instinct.
"With a turnaround situation, most traditional methodology doesn't work, and we use more subjective measures such as analyzing the core business," said George Putnam III, editor of the Turnaround Letter, whose stock picks are up 52.8 percent in 1992.
Companies capable of avoiding Chapter 11 bankruptcy protection or those already out of it are Mr. Putnam's preference. He wants no part of a company sliding into bankruptcy.
Oak Industries, maker of gas stove controls, has run from $1 a share to $2.25. Other hits are Wang Laboratories, Grossman's Inc. in home products retailing and National Education in training.
A new pick is LSB Industries, a small conglomerate in air-conditioning equipment and chemicals whose savings and loan is now in the black. Another is Lomas Financial Corp., a mortgage financing business which exited bankruptcy.
"Diversify in several stocks and realize a turnaround often takes longer than you think," advised Mr. Putnam.
Keep your feet on the ground.
"Although smaller capitalization stocks have done well the past year-and-a-half, some thinly traded stocks will go south if the market takes a hit," warned Mark Hulbert, editor of the Hulbert Financial Digest, which tracks the newsletters.
Jonathan Steinberg, editor in chief of the Individual Investor Special Situations Report, turned in a 28.2 percent gain. "In any market there are always good stocks, though you must understand volatility and avoid panic sales," he said.
Still-recommended Mr. Steinberg's successes include arts-and-crafts retailer Michaels Stores, rising from $8 a share to $22 since last summer; Communications and Entertainment, which finances independent producers, up from $1.75 to $4.25; and Score Board in trivia games and baseball cards, which has risen from $5.50 to $32 since mid-1990.
Robert Flaherty, editor of Equity's Special Situations, has turned in a 15.2 percent gain.
He sold big winners International Mobile Machines, Candy's Tortilla Factory and CCA Industries. Current choices are VISX Inc. in laser eye sculpting for vision correction; Garnett Resources in energy exploration; and Carrington Laboratories, whose wound gel may exceed the financial success of its AIDS efforts.
Mr. Hulbert's top-performing stock selection letters (none of which includes market timing or allocation advice), are:
* Turnaround Letter, 225 Friend St., Boston, Mass. 02114; Editor George Putnam III; one-year subscription $195; 1991 return 56.7 percent; year-to-date up 52.8 percent.
* Individual Investor Special Situations Report; 38 E. 29th St., New York, N.Y. 10016; Editor in Chief Jonathan Steinberg; one-year subscription $195; 1991 return 92 percent; year-to-date up 28.2 percent.
* New Issues, 3471 N. Federal Highway, Fort Lauderdale, Fla. 33306; Editor Norman Fosback; one-year subscription $95; 1991 return 55.8 percent; year-to-date up 16.5 percent.
* Equity's Special Situations, 37 E. 28th St., New York, N.Y. 10016; Editor Robert Flaherty; one-year subscription $150; 1991 return 36.1 percent; year-to-date up 15.2 percent.
* Emerging and Special Situations, Standard & Poor's Corp.; 25 Broadway, New York, N.Y. 10004; Editor Robert Natale; one-year subscription $223.50; 1991 return 44.4 percent; year-to-date up 8.8 percent.