Warren Buffett is famous for being one of the greatest investors of all time but also for his many cheeky and entertaining quotes. One of my favourites, which appears to often escape the memory of otherwise intelligent investors, is that "turnarounds seldom turn".
Mr Buffett was, of course, referring to publically listed companies that stage a turnaround in operational performance that ends up rewarding shareholders. For every company that successfully turns around its operations, I estimate that there are at least five that stage either a partial recovery or die a slow death over a number of years.
Successful turnaround stocks in 2014 included Echo Entertainment Group Ltd (ASX: EGP), Transfield Services Limited (ASX: TSE) and Cochlear Limited (ASX: COH), but over the same period a number of touted turnaround stocks fell further. Examples include the now-defunct Forge Group, Ten Network Holdings Limited (ASX: TEN) and Lynas Corporation Limited (ASX: LYC).
2015's Turnaround Stocks
Noting that perhaps one in six stocks with turnaround potential actually turns around, I've found six companies that could have a great 2015 – in the hope that one or more completes a turnaround:
Iron ore and oil companies are easy to pick as potential turnaround stocks. Much will depend on the direction of the commodity prices, but some analysts are calling the price bottom now which will benefit Santos Ltd (ASX: STO) and Fortescue Metals Group Limited (ASX: FMG), as two of the lower cost but more highly leveraged companies in the sector.
After Echo's stellar turnaround in 2014, many investors are hoping that 2015 will be the year of Crown Resorts Ltd (ASX: CWN). The company, like QBE Insurance Group Ltd (ASX: QBE), remains a long-term proposition but both could perform well in 2015 if macro events go its way.
Finally, JB Hi-Fi Limited (ASX: JBH) and Myer Holdings Ltd (ASX: MYR) represent solid exposure to the retail industry that is expected to benefit from improving consumer sentiment and an increase in disposable income following two years of falling or stagnant interest rates.
