Which are the top turnaround companies in India right now?
As per Equitymaster's Stock Screener, these are the top turnaround companies in India right now. They have delivered at least 3 consecutive quarters of profits after a string of losses.
As an investor you should be careful while investing in companies that have posted consecutive losses in the past .
The company's turnaround hinges a lot on dramatic changes in the way the business is being run, which may or may not happen. If it works, investors may benefit tremendously, but if not, the losses are crippling.
For those investors who do not fancy the prospect of a turnaround story, you could stick to fundamentally strong stocks which have a stable and steady business.
Either way, there are other parameters you should take into account before forming a hard opinion on the stock.
What are turnaround companies?
Turnaround companies are those companies that have delivered at least 3 consecutive quarters of profits after a string of losses.
The turnaround witnessed may be due to improved earnings, a major change in strategy, or any particular reason.
The market believes these stocks will soar in the future because the companies have turned profitable after years of making losses.
Do any famous investors believe in investing in turnaround stocks?
Peter Lynch is heralded as one of the most successful investors of all time. He was the manager of Magellan Funds at Fidelity Investments from 1977 to 1990.
His investing style involves breaking down stocks into categories. One such category which Lynch looks at is turnaround.
According to him, ‘turnaround stocks' are companies whose stocks have taken a severe beating in the past and have been forgotten by investors. But these companies have the potential for reversing their fortunes. According to Lynch, investors can check balance sheets of these companies to predict whether they can reverse their trends.
Lynch believes if these companies are coming up with new products or have been taken over by a new management, or they're cutting costs, it is a good indication that they have the potential for bouncing back.
Since Peter Lynch interests you, check out the stocks that Peter Lynch might pick from the Indian stock market.
Should you invest in turnaround stocks?
Turnaround stocks offer an opportunity to make significant gains as these companies are usually battered down and valuations seem attractive.
However, there's the added risk of these stocks being more volatile.
Most people investing in the market are attracted towards the next big stories and investment themes. So the prospect of a turnaround story is always mouth watering to them.
But it's not as simple as it seems.
The assumption is that the company will be able to capture the glory of its past and the benefits will be immense. But there is never any guarantee of this. The turnaround hinges a lot on dramatic changes in the way the business is being run, which may or may not happen.
A stable and steady business on the other hand may not have all the fanciness of a turnaround story.
But it has something that the prudent value investor will certainly not ignore: a business that has been growing surely but steadily, a management that knows what it is doing and does a very good job of allocating capital.