The Daffy Duck Investing Playbook: Ugly Ducklings Can Be Pretty on the Inside [GeoWire Weekly No. 210]

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It was a pretty quiet week on the news front, with limited morning email coverage outside of Branchout Food Inc. (NASDAQ:BOF)‘s revenue update and Covalon Technologies Ltd. (OTC:CVALF) (TSXV:COV)’s special dividend news. That said, it’s worth pointing out that Hammond Power Solutions Inc. (OOTC:HMDPF) (TSX:HPS-A) made a nice move on Friday, up 27% following its earnings release. The company mentioned it has started doing some data center work, which could be an interesting new angle for growth going forward. Anyways, you can still see our email coverage by visiting this page. Also, don’t forget to attend the Starting 5 Defense Conference this week, starting tomorrow at 12 noon, Eastern Time.

Now, on to a topic I love: searching for multiBaggers in microcap turnarounds.

What Makes a High-Probability Turnaround?

You’ll hear me mention “high probability turnarounds” often. And by the way, when I refer to turnarounds, I am talking about companies on the verge of dying, not those that are tweaking the business to create new growth or re-ignite growth… Because let’s face it, microcaps are always facing challenges.

It’s a good time to revisit this topic for two reasons. First, as I mentioned in last week’s Sunday update, we reintroduced our turnaround screen. Second, the MS Microcap Starting 5 Defense Conference have a few companies presenting their turnaround stories, like Velo3d, Inc. (NASDAQ:VELO) (3D printing) and Aluula Composites Inc (OOTC:AUUAF) (AUUA.V) (composite materials). 

As a reminder, subscribers to either Geoinvesting or the Microcap Investing Cliff Notes substack will have access to the conference.

Learn about the Defense Virtual Conference I will be hosting with Atrium Research here.

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The Starting 5 Conference is a virtual event created for and by serious microcap investors. It highlights high-quality microcap companies and high-probability turnarounds that meet “multibagger markers.” The goal is to showcase timely, fundamentally strong companies and connect investors with some of the best microcap investors who share their market views and top smaller-cap ideas. For fun, these conferences will also include a few turnaround stories.The conference features deep-dive interviews that ask key, critical questions to reveal real investment insights, offering attendees a clear view of each opportunity. The upcoming Starting 5 Defense Virtual Conference, hosted by MS Microcaps and Atrium Research, runs October 27–29, 2025, and will feature 10 handpicked companies and 4 respected investors and 1 round table discussion.

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Within Geoinvesting and the Microcap Quality Index at my Microcap Investing Substack, the goal is simple: find companies that already exhibit quality, hitting multibagger factors, or those that are becoming quality ahead of multibagger moves. Some of my biggest multibaggers, as well as within our community, have come from the lower-quality category: lower-quality businesses that are evolving toward higher standards of execution, balance sheet health, and shareholder alignment, many of which are turnarounds. 

For example, here’s a video clip (below) from August 2022 in which my team member Sanjay Amernani and I discussed the high-probability turnaround story of Bluelinx Holdings Inc. (NYSE:BXC) that we wrote about on September 9, 2016, in Bluelinx – BXC – Information Arbitrage Takes Center Stage. The stock rose from $15.79 to $31.60 in one trading session on March 12, 2018, after the turnaround inflected. Since this case study was published, it went on to hit a high of $134.79 on November 25, 2024.

Why Invest In Turnarounds

Why do I like turnarounds? Because screeners don’t rank these companies high and they are just naturally perceived as being riskier.

When I first started investing in stocks, I kept it simple by narrowing down the 10,000 stock microcap universe in three ways:

• Track momentum + GARPish set-ups by scanning the new 52 week high list
• Read press releases, which I know do through the press release APP my team built. 
• Stock screeners 

No matter what research route I took on a given day, I was always intrigued by the ugly ducklings that were trying to turn around. I am not sure why I started looking at turnarounds early in my career, but I do remember wanting to always explore ways to get a first mover advantage. In fact, my first “real money” investment around 35 years ago was in a company after it exited Chapter 11 bankruptcy that ended up netting me around 60% return. So, I was a “turnaround” believer out of the gates.

High-probability turnaround characteristics

So, what defines a high-probability turnaround?

When I’m evaluating one, I’m usually asking three key questions:

• Can I trust management?
  This is often the hardest variable to assess. You’re betting on a team’s ability to execute, communicate honestly, and make decisions that create (not destroy) shareholder value. Management trustworthiness often reveals itself in subtle ways: tone on conference calls, candor in filings, or whether they take ownership of past mistakes. Some might argue that you won’t know if a management team is quality until time has proven that out. However, the earlier you begin designing a playbook to assess management, the faster you’ll arrive at a point of inherently developing an instinct to know when you’ve encountered a team that you think has a high chance of success before the results and MultiBagger moves play out. This “sixth sense” is a key to getting a first-mover advantage.
• Does the turnaround make sense?
  The best turnarounds aren’t “hope trades.”They have a logical path back to growth or profitability that ties directly into our multibagger markers and increases the probability for success. Some of these markers include:
  • Operating leverage
  • Recurring revenue transitions
  • Margin recovery
  • Generating more revenue from current customers
  • Capacity expansions

• Is the capital structure shareholder-friendly, or at least fixable?
  A shareholder friendly capital structure is ideal for microcap multibaggers. However, not every turnaround starts with a perfect capital structure setup. For example, should a newly appointed CEO be penalized for capital structure destruction moves made by prior management teams? Also, there’s a big difference between temporary dilution and permanent value destruction. High-probability turnarounds try to preserve or repair shareholder value as they rebuild. Sometimes, I’ll take a “Hail Mary” on a messy cap table even if management needs to blow it out one last time to fix errors from prior mistakes, especially if this move is executed by a new management team.  

Ultimately, the best turnarounds share a quiet predictability. They’re not built on hype or promotion, but on small, observable signals that the business is stabilizing and capital allocation is improving. The “quality” may not show up in the numbers in the early innings, but that’s what gives us the opportunity to buy some ugly ducklings before they look beautiful and everyone else will want them.

Want to see how we apply these turnaround principles in real time?

Join us for the Starting 5 Defense Virtual Conference, October 27–29, 2025, featuring 10 companies 4 investors and 1 Roundtable focused on finding multibaggers.

As a Geoinvesting or a Microcap Investing Cliff Notes subscriber, you’ll get automatic access, and no registration is required. Zoom access link reminders (like those below) will be sent each day of the event, in the morning.

Don’t forget to add each day to your calendar using the links below.

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GeoInvesting is a premier research platform for microcap investors, dedicated to uncovering high-potential stock ideas in undervalued companies across various sectors. With over 30 years of investing experience, GeoInvesting has covered more than 1,500 equities, providing often actionable proprietary research. The platform has been instrumental in identifying 200+ multibagger stocks, and offers investors exclusive access to over 600 management interview clips, allowing for deeper due diligence and understanding of the microcap stocks, many of which make it to market-beating premium Model Portfolios. Join the GeoInvesting community for the best stock research and microcap insights to help you stay ahead in the market. To learn more about our Premium Services, go here.. (https://geoinvesting.com/premium-research/)

The post The Daffy Duck Investing Playbook: Ugly Ducklings Can Be Pretty on the Inside [GeoWire Weekly No. 210] appeared first on GeoInvesting.

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