It's the dream of every investor to find a stock that is down on its luck and ride it higher to riches.
These are the turnaround stories: companies that for whatever reason have struggled but are finding a way to get their groove back.
Who doesn't wish they had bought Amazon.com at $6 a share in 2002 after the dot-com meltdown when many tech stocks were left for dead? It is now trading near $255 a share.
Yet for every Amazon.com there is a Webvan or a Toys.com.
Who?
That's exactly the point. It's hard to pick out the true turnaround stocks.
Webvan and Toys.com were also web-based retailers that expanded rapidly in the 1990s. Webvan delivered groceries to homes, much like PeaPod does today. Toys.com tried to do the same by selling toys at lower costs than brick and mortar stores.
Neither one succeeded. Webvan and Toys.com no longer exist. Those investors were left holding the bag.
How Do You Separate the Stars from the Duds?
It's obviously not always easy to invest in the companies that are truly turning around instead of those that are going nowhere.
If it were easy, we'd all be in them.
More . . .
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Revealing A Turnaround Stock That's Now A 'Strong Buy'
Suddenly, this stock jumped from a Zacks Rank #3 (Hold) to a Zacks Rank #1 Strong Buy. But even more remarkable is that its rank is rising ahead of the earnings report. Now analysts are bullish given the recent announcement of an acquisition.
Today you can be among the first to get in while the stock is still cheap - a great value - before other investors clamber aboard.
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Thankfully there are some clues to watch for that will help you find more of these dream turnaround stocks. Here are 4 to consider:
1) It's All About the Good News
The first instinct many have when thinking about a turnaround stock is that something must be wrong with it. There must be some kind of bad news associated with the company for it to be trading at a discount. Right???
The true turnaround stocks will have a clear, positive, fundamental change taking place that tells you it's safe to get on board. Perhaps it's a new management team, product or sales approach that has caused the improvement in the company's earnings trajectory.
Whatever the case, be on the lookout for this good news that acts as a catalyst for earnings estimates to move higher. And that will lead to a significantly higher share price over time.