This could be the turnaround of 2014
A stock surrounded by negative buzz is one that could be a huge bargain -- especially with these potential catalysts.
Buying stocks that are surrounded by negativity is not fun -- but the best deals are often found in companies that are undergoing turnarounds yet still mired in bearish sentiment.
This should come as no surprise. After all, the reverse is true -- as Warren Buffett has said, "You pay a very high price in the stock market for a cheery consensus."
The market is full of stories about struggling companies that were able to turn around difficult situations and become profitable -- companies like Apple (AAPL), General Motors (GM) and Citibank (C). Investors in those companies who recognized and acted upon their turnarounds reaped large profits.
To be sure, not every struggling company returns to profitability. Many wither and die on the vine, leaving investors with little to nothing to show for their trust and investment.
There is no question that investing in turnaround candidates is risky. However, the substantial potential upside, combined with tactics to control risk, can make turnaround investing a profitable strategy.
A prime example of profiting from a company that is mired in negativity but is in the process of turning things around is YRC Worldwide (YRCW), a Kansas company that specializes in less-than-truckload transportation services. Investors who saw the value of YRC last year at this time are up over 270 percent, and those who jumped in at the start of 2014 are up 30 percent. Yet it's critical to note that shares remain down 97 percent over the past three years.
Readers of Dave Forest's premium Top 10 Stocks advisory are familiar with the lucrative nature of less-than-container load shipping. Dave examined the less-than-container load ocean freight shipper Expeditors International of Washington (EXPD) recently for DividendOpportunities.com, a StreetAuthority sister site. YRC uses a similar approach, but with overland trucks rather than oceangoing vessels.
YRC is a holding company for a portfolio of trucking brands through which it operates one of the largest less-than-truckload shipping networks in North America. It boasted revenue of nearly $4.9 billion in its most recent fiscal year, but the company has a market cap of just under $250 million. With its fleet of aging vehicles, YRC posted a loss of slightly over $119 million over the past 12 months.
How can a company post such tremendous losses if it's being run well?
YRC has suffered liquidity issues since it began a series of acquisitions in 2003. Next, a recession hit the economy, sending shipping volumes spiraling lower and making debt service on the acquisitions difficult. YRC nearly plunged into bankruptcy; it was saved only by aggressive shareholder maneuvers.
While YRC still has major debt problems, it has begun to address them. I believe the worst is behind YRC and there is only improvement ahead.
YRC recently completed the restructuring of just over $1 billion in debt and reached an agreement with a labor union on a revised contract. The anticipation of these events has sent shares soaring over the past year. The company expects the restructuring will save it between $40 million and $50 million a year (compared with interest expense of $151 million in its most recent fiscal year).
I'm not alone in my bullishness on YRC. Several hedge funds are also going against the negative sentiment, including Rima Senvest Management, which recently took a 6.8 percent stake in YRC. In addition, Solus Alternative Asset Management owns 28.5 million shares, and Marc Lasry's Avenue Capital holds 31.7 million shares.
Risks to consider: Trucking companies depend on a growing economy. If the U.S. economy starts to slip, heavily indebted firms like YRC will be the first to suffer. Always use stop-loss orders and diversify when investing.
Action to take: Although I think YRC could be the turnaround story of 2014, that could change quickly. Buying on a breakout close above $24 with stops at $19 and an 18-month target price of $36 --representing 50 percent upside -- makes solid investing sense.
David Goodboy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of EXPD in one or more of its “real money” portfolios.
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This person needs to do some homework. GM a turnaround stock. Hardly. Those who owned GM when they struggled got shares of mtlqq instead which was basically worthless. In other words they lost everything. If you bought the reissued GM at $32 it is now worth around $36. Hardly a killing after 5 years based on what the market did last year. Bad example.
Now, buying Ford at $2.00 a share in 2009 and holding on to $15 is a turnaround story. 700% return in 5 years. David needs to think his articles through a little better.
I'd go more for natural gas engine maker Westport Innovations (WPRT). They're finally ready to exit the R&D stage and start making some nice profits. 2014 could be quite a year for WPRT and the stock may well jump 25-50%, perhaps more.
J.C. Penney is likely the turn-around story in 2014.
It just surged 25% yesterday and if it just goes to $25 which is the 12-month high it would have appreciated 400%+ in just one year!! Keep in mind - two years ago it was over $75!!
Ford Mtr. Company is a great example - from a low of $1.61 to over $16 now!! A ten-bagger is very rare
. JCP could be next.
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4 analysts downgrade the stock the day after a disappointing quarterly report.
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