Turnaround stocks have been one of my favourite types of investment in the past, which is why I’m focusing on the prospects for Next plc (LON:NXT) (NXT.L), Boohoo.Com PLC (LON:BOO) (BOO.L), WM Morrison Supermarkets PLC (LON:MRW) (MRW.L) and BT Group plc (LON:BT.A) (BT.A.L).
Next has experienced a difficult set of trading conditions in the last couple of years. This stretches back to before the EU referendum, with 2016 being a difficult year for UK retailers. Since then, though, things have worsened and inflation is now above wage growth. This could cause more pressure across the sector and lead to lower sales and/or margins. In my view, Next’s P/E of 11.6 factors these risks in. I think it has a sound business model and could perform well in future.
It’s a similar story with Morrisons in my view. The company is facing possibly its most difficult outlook since after the financial crisis. However, this time around it seems to be engaging in a sensible means of improving its profitability with minimal cost. It is leveraging its position as a major food supplier and also seeking to reduce its leverage. These moves could provide it with better financial performance than rivals. This makes Morrisons one of my top picks in the supermarket sector.
BT faces a difficult outlook in my view. Its forecasts over the next couple of years are less impressive than for some of its sector peers and it is also seeking to change its structure and management organisation. I think such changes add extra risk to the company’s outlook, while a more price-conscious consumer in the UK may mean more investment in pricing is needed. That said, I think its acquisition of EE and the expansion of its pay-tv offering could mean BT performs relatively well in the long run.
Boohoo is a stock I’m bullish about, but the market is less keen following its recent trading update. The company’s share price has dropped 21% in the last month, although it showed some strength in yesterday’s trading session. The company’s acquisition programme and investment in the customer experience could be significant catalysts for its future profit growth in my view. With an internationally-focused business which could perform well even if Brexit begins to cause further challenges for UK consumers, I think Boohoo has investment potential.