f
  •  

Investing in turnaround stocks is a high-risk but potentially richly-rewarding strategy. If you do your homework right, you could end up with triple-digit returns.

Turnarounds can be described as the ultimate contrarian play since you’re betting on a company other investors don’t believe in. In most cases, these situations involve bankrupt companies that need to sell their profitable divisions, or companies that need to spin off unprofitable divisions, or ageing businesses that are finding it tough to compete with new entrants and maintain their dominant position.

Below, we short-list three troubled conglomerates struggling to restructure their businesses. If they succeed, investors betting on them could see good returns in 2020.

1. General Electric

The embattled industrial giant, General Electric Company (NYSE:GE), has divided analysts studying the success or otherwise of the company’s turnaround after demand for its products plunged and its debt level ballooned.

After plunging more than 60% up to late last year, GE stock is now on a slow and gradual recovery path. Trading at $11.27 at Friday’s close, it has gained about 55% in 2019, signaling that the new management’s restructuring plan is working.

GE Weekly Price Chart
GE Weekly Price Chart


The major boost to its stock’s move higher this year came when GE reported its third-quarter earnings last month, showing that its cash flow situation is improving and some of its industrial units have begun to show signs of life.

That performance is something the company’s new CEO, Larry Culp, has been promising since he took over more than a year ago. What made investors excited this time is the company’s improved forecast for its 2019 cash-flow — the second straight quarter GE was able to do that, helped by some signs of revival in its industrial businesses, which will generate as much as $2 billion in free cash this year. That amount is double its previously projected number of no more than $1 billion.

Despite these positive signs, analysts remain split on GE and its future still looks uncertain. J.P. Morgan, the biggest GE bear that accurately predicted its stock collapse three years ago, currently has a $5 price target. Its analysts said in a recent note that they do not believe that GE’s “management has set a bottom” for the performance of its businesses, adding that “GE is missing guidance on core business EBIT that was set in March.”

2. IBM

The century-old, tech giant, International Business Machines (NYSE:IBM) has been at such a crossroad for many years. Big Blue, as it's sometimes referred to colloquially, is struggling as technology and consumer preferences rapidly evolve, depriving this tech sector, legacy company of its main revenue sources.

Its sales peaked in 2011 and free cash flows did so a year later. Chief Executive Officer Ginni Rometty's strategies to refocus IBM’s business on the latest technologies, such as the cloud and artificial intelligence, helped bring about a significant transformation of the company. Indeed, during this period, IBM exited some markets, invested in cloud data centers and bought a number of companies to boost sales, bolster technology offerings and add troves of data to help train artificial intelligence (AI) algorithms.

Though IBM has so far been slow to capture a leading market share in the new areas of the digital economy, such as cloud computing, the company’s recent $34-billion purchase of Red Hat could prove a game-changer. This acquisition has added a relatively high-margin software business to IBM’s stable of offerings, especially led by the company’s hybrid cloud services to corporate customers.

IBM Weekly Price Chart
IBM Weekly Price Chart


The stock has been slowly responding to these efforts, rising 18% this year to $134.45 at Friday's close. Despite the recent upsurge, IBM stock still remains about 38% down from its record high in 2013, testing the patience of the company’s buy-and-hold investors. Analysts' average price target for this stock is $148.3 for the next 12 months, the lowest being at $120, the highest at $173.

3. Macy’s

Macy’s Inc (NYSE:M) is another troubled name that's in the middle of a turnaround, as it battles to win back customers at stores, amid surging e-commerce sales.

Macy’s CEO Jeffrey Gennette is trying a variety of tactics and new formats at its retail stores that have, so far, failed to produce results. For its third-quarter earnings report last month, the department-store chain lowered its guidance for the year,

The company has been spending heavily to lift its digital presence, adding more local merchandise and refreshing in-store fixtures. This has helped boost online sales, but hasn't been enough to put the retailer on a sustained growth path yet.

Along with its online push, Macy’s is also reducing expenses by closing stores. Still, in the longer term, the retailer needs to show that its cost-cutting, new spending and store remodeling are breathing fresh life into actual sales.

Macy's Weekly Price Chart
Macy's Weekly Price Chart


Investors, however, have shown a little faith. Trading at $15.32 a share on Friday, its stock has lost half of its value this year, continuing with the drastic plunge of the past five years after having hit a peak of $73.61 in 2015. The share price is close to analysts’ 12-month price target, with the lowest estimates calling for a further decline to $12 a share, while the highest call sees the stock rising to $22 a share.

Bottom Line

All three of these companies are making active and sustained efforts to turn their fortunes around and regain their footing in the ever-changing markets of today. The key element in turnaround investing is to recognise the right moment to jump in and get involved. GE, IBM and Macy's may well be hitting that crucial juncture soon and interested investors may find it's definitely worth their while to keep a close eye on them.


Other relevant articles 
[2019-12-02 19:35:24] Exclusive: Former Honeywell CEO in bid talks for Vertiv - sources
[2019-12-02 19:35:24] StockBeat: Roku Slumps as Morgan Stanley Sounds Alarm on Valuation
[2019-12-02 19:30:29] StockBeat: Roku Slumps as Morgan Stanley Sounds Alarm on...
[2019-12-02 19:25:26] Roku tumbles 15% as Morgan Stanley warns of streaming...
[2019-12-02 19:25:26] Brazil posts $3.4 billion trade surplus in November: Economy Ministry
[2019-12-02 19:20:26] Trump’s New Metal Moves Show There’s No Safety From ?Tariff Man’
[2019-12-02 19:15:25] Twitter makes global changes to comply with privacy laws
[2019-12-02 19:15:25] FAA chief to testify at Dec. 11 U.S. House hearing on Boeing 737...
[2019-12-02 19:10:24] Facebook warns EU regulators seeking data access about privacy,...
[2019-12-02 19:10:24] Uruguay President-elect warns of tensions in Mercosur trade bloc
[2019-12-02 18:55:25] UAW announces financial reforms as U.S. corruption probe widens
[2019-12-02 17:45:26] Gold Prices Recover Losses as Trump, Ross Talk up Tariff Threat
[2019-12-02 17:40:28] Steel Companies Jump After Trump Hits Brazil and Argentina with...
[2019-12-02 17:00:28] U.S. factory activity, construction spending unexpectedly fall
[2019-12-02 17:00:28] Repo Fretting Shifts to Treasuries as Market Faces Next Test
[2019-12-02 17:00:28] Oil Prices Trim Gains After Ross Renews Tariff Hike Threat
[2019-12-02 16:55:23] Norwegian Wins Coveted Heathrow Slots as It Rethinks Long-Haul
[2019-12-02 16:55:23] Forex - U.S. Dollar Stumbles After Manufacturing Decline
[2019-12-02 16:50:26] Oil Prices Trim Gains After Ross Renews Tariff Hike Threat
[2019-12-02 16:40:24] Cuba takes another swipe at dual currency system
[2019-12-02 16:30:26] Trump says China wants to make trade deal
[2019-12-02 16:20:24] U.S. factory sector contracts again in November: ISM
[2019-12-02 16:20:24] U.S. Factories Extend Contraction as Index Misses Forecasts
[2019-12-02 16:15:23] Volatility Spread Spells Trouble Ahead for South Africa’s Rand
[2019-12-02 16:10:33] Stocks - Wall Street Falters After Trump Revives Steel Tariffs 
[2019-12-02 15:45:25] Canadian factory activity expands at fastest pace in nine months
[2019-12-02 15:35:27] Could life insurance go up in smoke for some vapers?
[2019-12-02 15:00:29] Sold! Paris luxury real estate shines as London suffers Brexit...
[2019-12-02 14:50:28] Stocks - Roku Slumps Premarket; Fiat Chrysler, Amazon Rise
[2019-12-02 14:30:26] Futures gain on upbeat China factory activity; U.S. PMI data eyed
[2019-12-02 14:30:26] Italy PM Conte defends ESM reform but calls for additional...
[2019-12-02 14:20:24] Renault close to finalizing shortlist for new CEO: Senard
[2019-12-02 13:40:24] December Arrives With Four Big Trade Stories to Watch
[2019-12-02 13:30:39] Oil Rebounds as Iraq Backs Deeper Cuts Ahead of OPEC+ Meeting
[2019-12-02 13:25:24] Trump Revives Brazil, Argentina Steel Tariffs, Swipes at Fed
[2019-12-02 13:25:24] Global Manufacturing Shows Some Green Shoots as 2019 Winds Down
[2019-12-02 13:15:24] Stocks - U.S. Futures Rise on Strong Holiday Sales, Trump Damps Mood
[2019-12-02 13:15:24] Retailers see biggest-ever Cyber Monday after record online Black...
[2019-12-02 13:10:24] Explainer: How does impeachment of a U.S. president work?
[2019-12-02 13:10:24] Stocks - U.S. Futures  Held Back as Trump Implements Steel Tariffs
[2019-12-02 13:05:23] Trump says he will restore tariffs on Brazil, Argentina metal...
[2019-12-02 13:05:23] Chile economic activity down 3.4% in October as protests take...
[2019-12-02 13:00:28] UK public inflation expectations dip in November: Citi/YouGov
[2019-12-02 12:45:24] China suspends U.S. military visits to Hong Kong, sanctions U.S.-based NGOs
[2019-12-02 12:35:23] Top 5 Things to Know in the Market on Monday
[2019-12-02 12:25:28] Putin, Erdogan plan to launch TurkStream pipeline on January 8:...
[2019-12-02 12:25:28] Trump says he will restore tariffs on Brazil, Argentina metal...
[2019-12-02 12:15:24] EU fails to block U.S. tariffs in new WTO aircraft ruling:...
[2019-12-02 12:10:24] Giuliani associate due in court in campaign finance case
[2019-12-02 12:05:23] Italy to seek parliament vote to end ESM reform dispute
[2019-12-02 11:30:26] StockBeat: Europe Markets Rise on PMIs, German Fiscal Boost Hopes
[2019-12-02 11:30:26] Putin and Xi oversee launch of landmark Russian gas pipeline to...
[2019-12-02 10:40:30] Hong Kong Retail Sales Slump Again as Chaos Cripples Economy
[2019-12-02 10:40:30] UK manufacturers cut jobs at fastest rate since 2012: PMI
[2019-12-02 10:35:23] Stocks rally on Chinese data boost, cautious trade optimism
[2019-12-02 10:25:27] Euro zone factory activity shrank in November but worst may be...
[2019-12-02 10:25:27] German manufacturing contraction eases in November
[2019-12-02 10:15:24] China suspends review of request for U.S. military ships,...
[2019-12-02 10:05:23] Saudi Arabia wants OPEC+ to deepen oil cuts due to Aramco IPO
[2019-12-02 09:45:24] New Nissan CEO pledges better performance, cooperation with...
[2019-12-02 09:45:24] Ocado launches $642 million bond issue to fund robotic warehouse...
[2019-12-02 09:30:32] In China, coal creeps back in as slowing economy overshadows...
[2019-12-02 09:30:32] Italian government pursues parliament vote to end ESM reform...
[2019-12-02 09:15:26] Silver Lake appoints Egon Durban, Greg Mondre as co-CEOs
[2019-12-02 08:50:27] Just Eat investor Cat Rock puts 925 pence per share price on...
[2019-12-02 08:40:24] Saudi exchange to limit Aramco index weighting with cap
[2019-12-02 08:25:24] Turkish economy grows 0.9% year-on-year in third quarter, in line...
[2019-12-02 08:25:24] Premarket London: Ocado Issues Convertible Bonds to Fund...
[2019-12-02 08:15:24] Hong Kong Airlines must improve financial position or risk losing...
[2019-12-02 08:15:24] U.S. Attorney says government can still seek to take auto workers...
[2019-12-02 08:15:24] Burst of social unrest tests emerging market risk models
[2019-12-02 07:20:23] Exclusive: U.S. digs deeper into Deutsche role in Danske money...
[2019-12-02 06:10:31] India’s Central Bank on Course to Cut Rates After Growth Slump
[2019-12-02 06:10:31] India’s Telcos Jump After They Raise Mobile Phone Tariffs
[2019-12-02 06:00:36] Alibaba’s HK Shares Dip Despite Market Recovery
[2019-12-02 05:50:24] Data signal stabilization in China manufacturing activity
[2019-12-02 05:15:26] South Korea Consumer Prices Barely Rise Amid Dim Growth Outlook
[2019-12-02 05:15:26] Failure to unite blunts anti-Brexit threat in UK election
[2019-12-02 04:55:23] Oil recovers on China data and possible supply cuts extension
[2019-12-02 04:40:24] Oil jumps on Chinese factory growth, hopes for deeper OPEC cuts
[2019-12-02 04:40:24] Many firms have no contingency plans should U.S.-China trade war...
[2019-12-02 04:25:23] Stronger dollar and positive Chinese data weigh on gold prices
[2019-12-02 04:20:24] Hong Kong Says Unrest Costing 2 Percentage Points of GDP Growth
[2019-12-02 04:05:23] Stocks rise across Asia on China economic uptick
[2019-12-02 03:35:28] Yes Bank Gets $2 Billion Pledge From Little-Known Investors
[2019-12-02 03:20:24] Yuan stable as China PMI expands after months of gloom
[2019-12-02 03:15:25] China wants U.S. tariffs rolled back in phase one trade deal: Global Times
[2019-12-02 03:15:25] A year in showbiz: court drama, box office records and a young...
[2019-12-02 02:30:38] Global shares tick up as hopes for Sino-U.S. breakthrough stay...
[2019-12-02 01:55:47] Reports: South Florida fires Strong after three years
[2019-12-02 01:50:35] NFL roundup: Ravens sink 49ers on last-play FG
[2019-12-02 01:35:23] Venezuelan opposition to investigate report of wrongdoing by...
[2019-12-02 00:10:24] Alpine skiing: Olympic champion Mayer wins super-G in Alberta
[2019-12-01 21:20:30] Trump off to London for NATO summit, under pressure to steer...
[2019-12-01 21:20:30] EU audit finds Czech Prime Minister Babis in conflict of interest: report
[2019-12-01 21:15:22] At least 14 killed in attack on Burkina Faso church
[2019-12-01 21:15:22] Hamilton ends the F1 season in style in Abu Dhabi
[2019-12-01 21:00:25] Alpine skiing: Shiffrin wins slalom to tie for second on all-time World Cup list
[2019-12-01 20:50:20] Death toll from Lampedusa shipwreck rises to 18: Italian coast guard
[2019-12-01 20:20:21] Ferrari fined 50,000 euros for fuel irregularity