Discovering Turnaround Candidates

There are many types of investment methodology out there. All of them has their own merits. I for one, personally like to invest in turnaround stocks. What is turnaround stocks? They are normally companies that are experiencing problems (hopefully short-term), and a lot of people are not willing to wait for those companies to recover.

I personally like turnaround stocks for two main reasons; First, turnaround stocks have problems in the open. The problem has been disclosed and our task as investor is to figure out how much the company is worth should the problem persists or when the problem goes away. Granted, there might be more problems discovered along the way. But at the very least, some of the problems has come out and the share price generally has dropped because of that.

Secondly, expectation is low for turnaround investment. Share price is already depressed due to known problems. The company does not have to 'beat expectation' every time it reports earning. All it has to do is clear out the problems that causes its stock price to drop on the first place.

How should one find a potential turnaround candidates for their portfolio? The one thing that I found useful is to read the financial news. Companies that are in trouble can be easily spotted in the news. For example, this week brought news from Pier 1 Imports Inc. (PIR) and Doral Financial (DRL). Are these companies in trouble? Sure. Are they turnaround candidates? Possibly.

Another good source would be the list of stocks that are touching 52 week low. Most of these lists would be companies that are experiencing problems and hence has the potential of turning around. For example ATI Technologies Inc. (ATYT) trade closes to its 52 week low of $ 11.20.

What to avoid when sifting through lists of potential turnaround investment? I would avoid company that is getting hammered due to the delay in its financial reporting. No matter how low the share price is, investors do not and should not invest in companies that has some trust issues.

Once we identify our target, we can then do some analysis to determine the fair value of the stock. There are chances that some companies may never recover. So, we have to take that into accounts when doing fair value calculation. Calculating fair value is a whole brand new topic and I won't get into the details here. But obviously, a stock will have a higher fair value if it can recover from current problems than a stock that cannot overcome its current problems.

Hari Wibowo manages a small finance website aiming to help new investors getting started. Curious? You can find his other writings at http://www.noviceinvesting.com

---

Money Management - The Holy Grail Of Trading

Money management determines how much to risk on each individual... Read More

Adaptation to the Realities of the Market

Do you think adaptation to the realities of the market... Read More

Two Timeless Rules in FOREX Investing

RULE #1) ~ Cut your losers; let your winners ride.One... Read More

What are Your Options Regarding Forex Options Brokers?

Forex option brokers can generally be divided into two separate... Read More

Why Forex Traders Plan To Fail Before They Even Place Their First Trade & How You Can Know It & ...

Have you heard the wise saying that a trader who... Read More

The Secrets of the Super-Traders

The first and perhaps most important "secret" is to realize... Read More

Psychology Of Trading

The psychological aspect of trading is usually underestimated by those... Read More

A Look at Online Forex Brokers

An online forex broker is a firm that facilitates retail... Read More

Trade Entry Techniques

Most traders tend to concentrate on pinpointing the perfect entry... Read More

Forex Signal, Forex Signals Advice

There are lot's of Forex signals providers out there. New... Read More

Stopping Yourself

I read on a bulletin board a traders comment that... Read More

Advantages of Trading FOREX Over Stocks and Commodities

There are many advantages to Trading FOREX as your main... Read More

A Beginner?s Guide to FOREX

FOREX is the abbreviation for the Foreign Exchange market. FOREX... Read More

Business and the Forex

The business world is a complex web of supply and... Read More

The Major Players in the Foreign Currency Exchange Market - FOREX

Since the US dollar is the centerpiece of the market,... Read More

Where to Get Forex Training

For those of you who are interested in forex trading,... Read More

FOREX Trading Philosophy

Keen on starting FOREX trading? Why would you not be?... Read More

Trade Exit - How To Cut Losses And Let Profits Run

Cut your losses short and let your profits run. This... Read More

Hedging Foreign Exchange Risks

The exchange rate of the Macedonian Denar against the major... Read More

Writing A Trading Plan

All professional traders have a trading plan. Trading futures is... Read More

Your Mother Could Make Money In Forex Trading

The question would be not whether she could but rather... Read More

What is Forex Trading?

Forex, or Foreign Exchange, is the simultaneous exchange of one... Read More

Forex Made Easy for Everyone

Forex made easy is as simple as you would want... Read More

Forex Options Market Overview

The forex options market started as an over-the-counter (OTC) financial... Read More

6 Critical Factors For Successful Trading

Success in any profession can be broken down into a... Read More

Intrenet Marketing VS Forex Currency Trading

Have you noticed that when someone's trying to sell you... Read More

Sending Signals for Trading in Forex

Forex signals are sent by a forex firm to their... Read More

Forex Scams: How to Spot Them A Mile Away

In recent years, investors have witnessed increased number of investment... Read More

How to Trade Currency

We all know when you go on a trip to... Read More

The Secret of Reduced Margin Spreads

One of the best kept secrets in trading is that... Read More

FOREX 101: Make Money with Currency Trading

For those unfamiliar with the term, FOREX (FOReign EXchange market),... Read More

Stock Market Report: Day Trading or Swing Trading Online? Stock Investing Information

Profitable day traders recognize that momentum trading is among the... Read More

Forex Trading Can Be Like Day-trading

Forex trading, or foreign currency trading, has become a bit... Read More