Turnaround stocks can offer high risks but also high rewards, which is why I’m focusing on the investment potential of Carillion plc (LON:CLLN) (CLLN.L), Interserve plc (LON:IRV) (IRV.L), Provident Financial plc (LON:PFG) (PFG.L) and Petrofac Limited (LON:PFC) (PFC.L).
Carillion appears to be very cheap at the moment. It has a P/E of around 2, which suggests to me that investors are betting that its EPS will continue to fall after what could prove to be a tough 2017. This wouldn’t surprise me, since the company faces difficult trading conditions and they could hurt its overall profitability. Although Carillion is making progress with new contract wins, I believe things could get worse before they get better due to the difficulties within the company’s industry.
It’s a similar story for Interserve. It released a profit warning earlier this year and its shares have now fallen by 78% in the last year. The company continues to have a sound underlying business in my view, and I feel it could perform well relative to some of its peers. However, there may be better industries for me to invest in at the moment, where there are less risks and still high potential rewards. Therefore, while I’ll keep watching Interserve, I’m not looking to buy it just now.
Provident Financial has been in the headlines this year not just because of the difficulties it has faced in its home credit division, but also because its 70% share price fall has hurt the performance of Neil Woodford’s fund. Although the company has made progress in turning the performance of its home credit division around according to a recent update, there could still be some way to go in my view. Therefore, I’m happy to wait for evidence of a turnaround before adding Provident Financial to my portfolio.
Petrofac is a stock which has also experienced a tough 2017 so far. Its stock price has slumped by 51% this year and it does not seem to have responded all that positively to the rising oil price in recent months. Investors seem to be uncertain about its prospects due to the SFO investigation and this could hold its performance back in future in my opinion. While there may be a sound underlying business as well as a low valuation and high dividend yield, I think there are better options for me in the oil and gas industry than Petrofac at the moment.