However, I made an exception with medical products and technologies group ConvaTec (LSE: CTEC) when I wrote bullishly about it within six months of its October 2016 flotation. The tip has been a disaster. The share price was 303p at the time and is now around 134p.

I got ConvaTec badly wrong. But have we finally reached a point where the time to buy is right?

Attractive business characteristics

I’m a fan of the healthcare sector generally, due to strong growth fundamentals provided by ageing populations. And I felt ConvaTec was a particularly attractive proposition, because of its focus on “therapies for the management of chronic conditions,” and its “leading market positions in advanced wound care, ostomy care, continence & critical care, and infusion devices.”

It was these business characteristics, together with a strong set of maiden annual results as a listed company, in March 2017, that persuaded me to tip the stock. However, things soon went wrong.

Profit warnings

The company issued a shock profit warning in October 2017. It said this was largely due to supply issues, arising from a move of manufacturing lines from the US to the Dominican Republic. Temporary and fixable, I thought, and remained bullish on the stock at 180p.

A year later, we had a second profit warning. This was accompanied by the departure of chief executive Paul Moraviec with immediate effect, and non-executive director Rick Anderson (former chairman of Johnson & Johnson) taking the helm as interim chief executive. The company said the primary reason for this profit warning was a change in inventory policy by the biggest customer of its infusion devices division. These things can happen, I thought, and remained bullish on the stock at 140p.

Turnaround

Last month, ConvaTec released its latest annual results and interim boss Anderson’s strategic review of the business. He had some blunt things to say about the company’s commercial and operational execution failures, and he reckoned investment of $150m over three years is needed to put things right.

On the positive side, he concluded: “The fundamental opportunities of our markets, products and brands remain sound.”

Time to buy now right?

There are other positives. Despite its troubles, ConvaTec has remained profitable and cash generative. Current net debt of $1,305m and a net debt/EBITDA ratio of 2.7 are down from $1,510m and 3.0 two years ago. It’s forecast to continue being profitable and to maintain its dividend at $0.057 (4.35p at current exchange rates), giving a handy yield of 3.25%.

When I first tipped the stock, the forward price-to-earnings (P/E) ratio was 19.7 (on a par with sector peers like Smith & Nephew). Today, it’s just 12.5.

I made a big mistake in allowing my enthusiasm for the sector to override my usual caution on private equity flotations, and in tipping ConvaTec far too soon after its stock market debut (lesson learned). However, having got it badly wrong, I do think the current valuation and turnaround prospects offer considerable medium-to-long-term upside potential. As such, I feel the time to buy could now be right.

The post I got this FTSE 250 stock badly wrong. But could the time to buy now be right? appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Generally, as pure-plays on upstream, mid-cap producers have a lot more to gain from a sustained upswing in oil prices. At the same time, many mid-cap companies in the sector continue to trade well below their historic highs and are valued at big discounts to the market.

Tullow Oil

Shares in Tullow Oil haven’t exactly been sparkling of late — they’re up just 5% since the start of the year, to 216p. The Africa-focused oil and gas explorer clearly has some way to go before it’s fully out of the woods, but early signs suggest that things are beginning to move up for the company.

Thanks to higher oil prices and increasing production, Tullow swung back into profit in the first half of 2018, after making a loss of $348m in the same period last year. Profit after tax in the six months to 30 June was $55m, while free cash flow nearly doubled to $401m.

Progress is also being seen with the ramp-up in production from its offshore Ghana TEN oilfields, with estimated reserves of 300m oil-equivalent barrels. In a recent operational update, the company said it expects to hit full output capacity of 80,000 barrels a day by 2020, up from 56,000 currently.

Exploration

With Tullow’s financials coming back into shape, we are once again seeing more investment into growing its reserves. Although exploration always requires a bit of a gamble, finding new oil has always been its key strength. Tullow has one of the best track records of discovering new reserves, so increased spending on exploration has the potential for significant upside.

On the other hand, however, plans to resume dividend payments aren’t a priority. Despite a big jump in free cash flow, net debt is still rather high, at $3.1bn, meaning Tullow is highly leveraged to the price of oil.

Eastern Mediterranean

Elsewhere, Energean Oil & Gas (LSE: ENOG) is another stock that deserves a closer look. The FTSE 250 company, which raised $460m from listing its shares on the London Stock Exchange in March, has big plans to develop its gas prospects in the eastern Mediterranean.

The eastern Med has become an increasingly active exploration and production region, following a series of high-impact discoveries in Egypt and Israel, attracting a hive of investments from Exxon Mobil, BP, Eni and Total. With the appearance of the oil majors in the area, infrastructure is being developed, opening up supply routes for independent producers such as Energean.

Significant upside

Energean, which has its main production base in Greece, intends to use the proceeds of its equity sale to develop two major gasfield discoveries offshore from Israel, Karish and Tanin. Together, they have potential reserves of up to 2.4trn cubic feet of gas and 32.8m barrels of light oil and condensate, representing significant upside potential for a firm that has just 50m oil-equivalent barrels of commercial reserves.

Of course, there are major risks involved too. On top of the usual cacophony of execution and commodity price uncertainty, investors will have to contend with political risks and rivalries that are typical of the region.

The post Have £1,000 to invest? This growth stock could be a great turnaround story appeared first on The Twelfth Magpie.

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Jack Tang has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, a few shrewd analysts began to question the underlying performance behind outsourcers’ multiple acquisitions, the way they booked revenues and the high debt and lack of tangible asset backing. They were right to do so, because these chickens came home to roost, most notably with the collapse of Carillion.

Huge turnaround potential

Back in January, I wrote that I’d sell Carillion at almost any price but I rated Capita a ‘buy’, albeit one with elevated risk. My optimism proved misplaced. The shares were trading at 410p at the time but are changing hands at around 160p, as I’m writing.

The fall of Capita from its high of over 1,300p has been spectacular, taking it down the FTSE 100 and into the second-tier FTSE 250. There are probably private investors who will never go near the stock again and with big FTSE 100 tracker funds no longer holding it and it also being unappealing for equity income institutional investors (the dividend has been scrapped for the time being), this has got to be one of the most unloved companies around.

However, because of some positive developments since my January article, I continue to rate Capita a higher risk ‘buy’ but one with huge turnaround potential from the now thoroughly depressed share price. Further management changes, a balance sheet bolstered by a £700m rights issue, progress on the disposal of non-core assets and the winning of new contracts all give me cause for optimism.

I believe the Carillion disaster should lead to outsourcing contracts being awarded more on a best value basis than simply to the lowest bidder. If Capita can make any kind of decent margin on its multi-billion revenues, which I believe it will be capable of, I can see the shares rising strongly in time, as the market regains confidence in the company.

Temporary setback?

Global medical products and technologies company ConvaTec (LSE: CTEC) was London’s biggest flotation of 2016. Its 225p-a-share IPO valued it at £4.4bn and its shares were trading at over 300p the following year. However, late in the year, the shares dived when the company reported some significant operational issues. The collapse in its market cap led to it being demoted from the FTSE 100 in December.

I viewed these operational issues as temporary and felt comfortable with management’s confidence in resolving them. In an article at the time, I wrote: “Given the growth and margin progress that was being made up to this point and the fact the shares have slumped so far (near to 180p), I see merit in buying a small stake in this higher risk/reward turnaround situation, perhaps adding on an improving outlook.”

The company has indeed made progress. In a Q1 trading update last month, it said: “We have delivered a solid start to the year, underlining 2018 as a year of stabilisation.” The shares have recovered to 215p at the present time and I continue to rate the stock a ‘buy’ at this level. I believe the business has a bright future in the attractive healthcare sector.

The post Could this fallen FTSE 100 star be the turnaround buy of the decade? appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Encouraging progress

Wednesday’s first-half results gives me confidence in the company’s ability to weather structural headwinds facing the tobacco industry. Although adjusted operating profit fell by 2.2% in constant currency terms, it exceeded analysts’ expectations, as cigarette volumes declined slower than expected and the company achieved higher prices over the period.

Management actions to more effectively allocate capital are also beginning to show signs of progress, after a £2bn disposal of non-core tobacco products in the US and a fall in adjusted net debt to £12.7bn. It also said its cost optimisation programme is on track to deliver £100m of annual savings in the full year.

At the same time, Imperial Brands continues to invest in next generation products. It’s seeing encouraging growth in its vaping business and has a strong pipeline of exciting new products, which could be brought to market in the coming year.

Valuations

Sure, concerns about a stricter regulatory environment and the long-term decline in the smoking population will continue to put off some investors, but I believe much of these risks are already priced into its shares.

Although these structural headwinds will likely slow earnings growth going forward, I reckon management actions and growth in next generation products will offset much of the impact. The company is doing better than its competitors in many of its key markets, with volumes declining at a slower pace than the industry as a whole and the company gaining market share — yet valuations for the group remain at a substantial discount to its peers.

With shares in the company trading at 9.7 times their expected earnings this year, they’re also trading well below their 5-year historical multiple of 13.3 times forward earnings.

Improving confidence

Looking elsewhere, Saga (LSE: SAGA) is another company to keep your eye on. Shares in the over-50s travel and insurance group have rebounded strongly in recent weeks as travel sales continue to offset much of the slack from its insurance business.

Despite intensifying competitive pressure in the home and motor insurance markets, the group is optimistic about its longer-term prospects — so much so that the board raised its full-year dividend payout to 9.0p.

Major shift

Saga has been undergoing a major shift in its business model. The company is moving away from riskier and more capital-intensive underwriting towards a ‘pure’ broking service, but the shift has not delivered the profit uplift expected by the company.

The transformation in its business model may still make sense for the group in the long term, as it frees up capital and enables the firm to focus on marketing its products. Saga has recently launched its membership scheme, which is showing good initial momentum in new business volumes.

This new membership scheme rewards customer loyalty and aims to reduce churn-rates and enhance cross-selling opportunities. It’s part of Saga’s attempts to reinvigorate the brand and make it more relevant in today’s over-50s market.

It’s still too early to say whether these initiatives will deliver a lasting improvement to its performance. Valuations remain undemanding, however, with shares trading at a forward P/E of 10.2.

The post Has Imperial Brands’ share price finally turned a corner? appeared first on The Twelfth Magpie.

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Jack Tang has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The big question for investors today is whether these are broken businesses, doomed to struggle in coming years, or great businesses, suffering temporary setbacks but destined to return to their former glories. If the latter, they could be great stocks to tuck away in an ISA, sheltered from tax on terrific long-term capital gains and dividends.

Setbacks

On Monday, Hikma announced that the US Food and Drug Administration requires it to complete an additional clinical endpoint study for its generic version of GlaxoSmithKline‘s Advair Diskus asthma drug. The news wasn’t altogether unexpected and while the investment case for Hikma by no means rests on the fate of the product, it’s bad news that it won’t now reach the market until at least 2020.

Today, Hikma released its annual results, posting a statutory loss for the year of $839m. The shares are trading at 950p, as I’m writing, 9% up on the day but still well down from a 52-week high of near to 2,300p.

The statutory loss was largely due to a huge non-cash impairment on reduced expectations for the portfolio and pipeline of the group’s generics arm, in light of “increasingly competitive dynamics of the US market, including intense pricing pressure.”

Still fundamentally attractive

Despite the headwinds in US generics (and the US generally to a degree), I believe Hikma remains a fundamentally attractive investment proposition. Its diversified business including branded and injectables — and a strong position in the Middle East and North Africa — delivered total revenue of $1,936m in 2017 (1% down on the prior year but up 1% at constant currency) and record cash flow from operations of $443m.

Core earnings per share (EPS) of $1.05 (75p) give a price-to-earnings (P/E) ratio of 12.7, which strikes me as highly attractive. And with management showing its confidence by increasing the dividend from $0.33 to $0.34 (24.3p), giving a handy 2.6% yield, the shares look very buyable to my eye.

Future growth targets

Compared with Hikma, the troubles of Provident Financial have been legion. The non-standard (a.k.a. sub-prime) lender removed a good bit of uncertainty in its recent annual results. It announced a settlement (estimated cost of £172m) in connection with its Vanquis Bank’s Repayment Option Plan, following an investigation by the Financial Conduct Authority (FCA), and also put an estimated number (£20m) on an ongoing FCA investigation into its Moneybarn business. In addition, it announced a £300m fundraising and said its Provident Home Credit division is beginning to recover after last year’s disastrous change to its operating model.

At 935p, the shares are up from their pre-results multi-year low but are still way below a 52-week high of 3,265p. Despite the recent news providing some clarification, I still see the situation as too messy and uncertain at this stage to be confident of management realising its targets for future growth. With underlying EPS of 62.5p giving a P/E of 15, I’m going to avoid this stock for the time being.

The post Provident Financial plc isn’t the only turnaround stock I’m considering buying for my ISA appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’ve been critical of its erratic history, failure to find a way to deliver sustainable earnings and dividend growth and poor long-term share performance. However, such companies do tend to go through phases where they deliver excellent turnaround returns for value investors, who buy low and sell high.

With Centrica’s shares having this month plumbed depths not seen since last century, could now be the perfect time for value investors to jump in for a recovery?

Waiting game

The market had been told, via a profit warning in November, of a poor performance for 2017. The annual results were released last week and the shares have actually advanced a little in response, as the numbers were only as grim as the market expected. Nevertheless, grim they were. Statutory earnings per share (EPS) plummeted 81% to 6p and even excluding all the nasty stuff, adjusted EPS dropped 25% to 12.6p. The board declared a 12p dividend for the third year running, having reduced the payout in each of the two prior years.

At a current share price of 142p, the trailing price-to-earnings (P/E) ratio is 11.3 on the more favourable adjusted EPS number. The dividend yield is a whopping 8.5%.

Chief executive Iain Conn told investors: “I am determined to restore shareholder value and confidence.” However, with the company continuing to bleed customers and the headwinds from political and regulatory intervention in the energy market, I believe things may well get worse before they get better. If so, the dividend would likely be cut (as some analysts are already forecasting) and the share price could fall further. As such, I’m continuing to avoid the stock at this stage.

Skin in the game

Another potential turnaround prospect beckoning investors is FTSE SmallCap firm Devro (LSE: DVO). This company, which has the long-form description “one of the world’s leading manufacturers of collagen products for the food industry” and the short-form version “sausage skin maker,” released its annual results today.

The first year of Devro’s three-year plan to deliver revenue growth and cost savings across its global operations has progressed well, with the company delivering a top-line advance of 7% thanks to increased volumes. It exceeded its cost reduction target and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 9%.

However, EPS dropped to 12.5p from 13.3p. This was due to higher finance costs, which will begin to fall, because the company has completed major capital investment projects. As it is, strong cash generation in 2017 saw net debt reduce to £135m from £154m and the net debt-to-EBITDA ratio come down to a healthier 2.1 from 2.7.

At a share price of 199p (little changed on the day), Devro’s trailing P/E is 15.9 and its dividend yield is 4.4% on a maintained 8.8p payout. In my view, the business is now well positioned for strong earnings and dividend growth in the coming years and I rate this turnaround stock a ‘buy’.

The post Centrica plc isn’t the only turnaround stock on offer today appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Devro. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The shares reached an all-time high of well over 1,200p four years ago but lost more than half their value over the next two years due to a string of profit warnings. A recovery to close at 1,000p by November last year has stalled and the shares are currently trading not much above 800p.

Rolls-Royce isn’t the only FTSE 100 stock with turnaround potential in the market today, but I believe its quality management team can deliver and unleash the latent upside of over 50% to the stock’s previous high.

Turnaround

Warren East, the former boss of British tech champion ARM, took over as chief executive of Rolls-Royce in 2015. The company was in the midst of battling headwinds from the collapse of the oil price, which was hurting its Marine division, and managing a major transition in its Aerospace business from mature engines to next-generation, more fuel-efficient ones.

However, East identified a need for a wholesale transformation of the group’s management, processes and culture. He’s already achieved a great deal but the restructuring is still in process. The company announced on 17 January that it’s embarking on a further simplification of the group, including a potential sale of the commercial arm of its Marine division and a reduction from five operating businesses to three core units based around Civil Aerospace, Defence and Power Systems.

The company has achieved the target East set in 2015 of a fixed cost reduction rate of over £200m by the end of 2017 and the new measures will strip further costs and complexity out of the business. CFO Stephen Daintith commented: “We are taking decisive action now in order to secure and enhance the long-term benefit of the cash flows that will be generated over the coming years.”

Free cash flow set to soar

The company hasn’t put a number on the future cash flow benefits. It said it’s still in the process of defining the restructuring but will give further details when it announces its annual results on 7 March and a fuller discussion at a capital markets event later this year.

Whatever the number turns out to be, I reckon it should support or enhance the analyst consensus free cash flow (FCF) estimates, currently published on Rolls-Royce’s website. These figures, shown in the table below, were compiled on 8 January — i.e. before the 17 January announcement of the further simplification of the business.

The company’s previous peak FCF — in the year the shares made their all-time high of over 1,200p — was £781m. Even without any upgrades to the projections in the table, Rolls-Royce would be well on its way towards that figure next year, before soaring past it and breaking through the £1bn level in 2020.

As such, the shares have potential upside of in excess of 50% on a two-to-three year view, if management successfully executes its plans and the market rates the company on the kind of price-to-FCF multiple it did in the past. The risk/reward balance looks favourable to me and I rate the stock a ‘buy’.

The post Is there a better FTSE 100 turnaround stock than Rolls-Royce Holding plc? appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The shares are up 2% at 187p, as I’m writing, giving the company a market capitalisation of £2.6bn. This is still well below the valuation it once commanded. In an improved oil price environment and after today’s results, is Tullow a top turnaround buy?

Improving performance and bright future

The Africa-focused group’s revenue of $1.72bn was 36% ahead of 2016, as its working interest production surged 32% to an average of 94,700 barrels of oil equivalent per day (boepd).

Despite $682m of write-offs and impairments, it managed a small operating profit of $22m, although after net finance costs of $310m and a tax credit of $111m, the statutory bottom-line was a loss of $189m. However, with the write-offs and impairments being non-cash items, the cash flow picture was considerably better: the company generated free cash flow of $543m.

Tullow got through the oil rout with a millstone of debt, helped by supportive lenders. Net debt remains relatively high at $3.5bn but is falling and is now only just above management’s target level of below 2.5 times EBITDAX (earnings before interest, taxes, depreciation, depletion, amortisation and exploration expenses).

Looking ahead to 2018, the company has guided on production of between 86,000 and 95,000 boepd. City analysts are forecasting earnings per share (EPS) of around $0.20 (14.4p at current exchange rates), giving a price-to-earnings (P/E) ratio of 13. This looks an undemanding rating to me as I see scope for production upgrades this year, while the company’s valuable development and exploration assets bode well for the longer term. As such, I rate Tullow an attractive ‘buy’.

Moving towards full potential

Also on my buy list of turnaround oil stocks is Gulf Keystone Petroleum (LSE: GKP). This producer, whose operations are in the Kurdistan Region of Iraq, is a smaller company than Tullow, having a market capitalisation of £268m at a current share price of 117p.

Gulf Keystone hasn’t released its results for 2017 yet but said in an update in January that average gross production for the year was 35,298 bopd. It also guided on production for 2018 of between 27,000 and 32,000 bopd, the lower range being due to a delayed investment programme from last year.

Subject to the resolution of certain commercial matters and the government continuing regular payment of monthly invoices, management intends investing to expand production capacity to 55,000 bopd in the near-to-medium term. This would be a significant step towards development of the full potential of its field and production of around 100,000 bopd.

For 2018, City analysts are forecasting EPS of around $0.15 (10.8p), giving a P/E of under 11. Visibility on commercial agreements and payments appears to be improving in Kurdistan and with Gulf Keystone having a strong balance sheet and looking more confident about investing to increase production, the low P/E makes the shares look very buyable to my eye.

The post Is Tullow Oil plc a top turnaround buy after final results? appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The reason for investors’ disquiet towards WPP has been a rocky outlook for traditional advertising at the same time as huge customers such as Unilever have slashed marketing budgets by billions of pounds as they question the effectiveness of buying online ads through big media firms, rather than turning to tech titans such as Google.

The result for WPP has been sales that have begun to reverse with like-for-like (LFL) revenue shrinking 0.9% in the first nine months of 2017. Reported revenue was slightly up on the year before in constant currency terms due to acquisitions, but at just 1.1%, this growth is far below global GDP growth.

Yet underneath these less than stellar results, WPP appears to have a future after all. This is because the group is fast transitioning to focus on emerging markets and its digital business, with revenue from online services up 2% on a LFL basis and 7% in constant currency terms due to acquisitions. For the first nine months of 2017, these digital sales accounted for a full 41% of revenue, up from 28% in the year prior.

If WPP can continue to grow its digital sales and prove the effectiveness of its efforts to large multinationals, contrarian investors could find now a very attractive entry point into a highly profitable business with bumper shareholder returns through dividends and share buybacks.

Adapting to changing habits 

Investors also fell out of love with broadcaster ITV (LSE: ITV) last year with the firm’s shares dropping by some 13% as advertisers trimmed their TV budgets and investors began to question the longevity of the traditional broadcaster’s business model.

But there is a case to be made that investors have oversold ITV and may be undervaluing a business that is rapidly changing itself to better suit the 21^st century. In the nine months to September, a full 40% of the company’s revenues came from its studio division, which creates content both for ITV and other media groups in the UK and overseas.

Sales from this division are growing quickly and were up 9% in the nine months to September. In addition, ITV’s management is adapting to new consumer viewing habits by beefing up its online presence. This is evidently working as online viewership rose 41% year-on-year with revenue from these eyeballs rising 8%.  

But it must be said that the group’s overall external revenue did fall by 1% in these three quarters as revenue from traditional TV spots continued to fall. Yet with the company’s shares trading at just 11 times consensus forward earnings while offering a 4.2% dividend yield, hardy contrarian investors could find highly profitable ITV a bargain in 2018 if management can continue to shift to online ads and expand its studio output.

The post 2 FTSE 100 turnaround stocks for contrarian investors in 2018 appeared first on The Twelfth Magpie.

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• Should I buy ITV shares for my ISA ahead of the World Cup?
• With dividend yields averaging above 7%, are these 2 UK shares worth considering?

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The tanked ten

The Footsie’s 10 worst performers over the last 12 months (as I’m writing) are shown in the table below.

As you can see, there’s a degree of sector concentration. However, for at least some of these stocks, company-specific issues have compounded the market’s sector concerns. That’s certainly the case with the two biggest fallers, Centrica and BT.

My Foolish friend Harvey Jones has recently written an in-depth article on Centrica and its recovery prospects and an equally interesting piece on BT’s troubles and turnaround potential. However, my eyes are drawn to a couple of stocks a little lower down the losers list.

Cheap telly

ITV has been very much out of favour with investors. The 17% fall in its shares over the last 12 months is hefty enough but extend the timeframe to 24 months and the decline is 40%.

The market is concerned by the structural threat to the business posed by digital media, as well as its UK focus at this transitory time of Brexit uncertainty. However, the company is highly cash generative, with a strong record of returning surplus cash to shareholders, including though special dividends.

I believe the fall in its shares has more than discounted the challenges faced by ITV. As such, the stock looks very buyable to me on a current-year forecast price-to-earnings (P/E) ratio of 10.7, with a prospective dividend yield of 4.7%.

World leader

The healthcare sector is one area of the high-flying market where there remain some good value growth stocks. Pharma group Shire, which has laboured under negative investor sentiment since its $32bn acquisition of US company Baxalta last year, is one such stock.

This large acquisition has increased risk and also debt. However, integration is well advanced and I believe Shire’s enhanced position as the world leader in an attractive market (rare diseases) isn’t adequately reflected in its share price.

The company doesn’t pay much of a dividend at this stage (the prospective yield is just 0.7%) but it’s the potential for the share price to rise strongly that leads me to rate the stock a ‘buy’. This year’s forecast P/E is just 10.3 and I believe we could see a significant re-rating in 2018.

Others to consider

Some Footsie shares fell so heavily during 2017 that the companies were demoted from the elite index to the second-tier FTSE 250. If you’re looking for further potential recovery stocks to investigate, the following all fell far enough to drop clean out of the FTSE 100: Babcock International, Capita, ConvaTec, Dixons Carphone, Hikma Pharmaceuticals, Merlin Entertainments, Provident Financial and Royal Mail.

The post Could this year’s biggest FTSE 100 fallers be 2018’s biggest winners? appeared first on The Twelfth Magpie.

More reading

• £500 gets 617 shares in one of the top FTSE income stocks to buy!
• Here’s how to invest £3,600 in UK shares to target a 7% dividend yield
• Should I buy ITV shares for my ISA ahead of the World Cup?
• With dividend yields averaging above 7%, are these 2 UK shares worth considering?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Hikma Pharmaceuticals, ITV, and Shire. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.