Buy Turnaround Plays When They Prove They Can Turn Around

On Wall Street, traders are often attracted to “turnaround” stocks. These are companies that have fallen on hard times. But, they have a plan to right what went wrong.

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  • That sounds well, and can often attract investors in a stock that looks like a value. But not all turnaround stocks are able to turn things around. That’s why investors should wait for signs a turnaround is succeeding. It may cost some profits, but it increases the chances of keeping a profit.

    Regional bank Truist Financial (TFC) has suffered with other bank stocks this year. And since its merger, it’s struggled. But that’s created an opportunity as the company works out the kinks.

    Shares have been knocked down 37 percent this year, and revenues have been flat. Yet the bank has a 27 percent profit margin, which can improve over time.

    And the drop in shares has tanked valuations to less than 8 times earnings, and just two-thirds of the bank’s book value.

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  • Action to take: Shares look like a reasonable value play with significant upside from here. As a larger bank, Trust should trend towards book value in time. And shares yield 7.4 percent from here.

    For traders, the January 2024 $30 calls, last going for about $1.45, could see mid-double-digit gains or better in the coming months. Shares have been somewhat rangebound the past few months and look set to move higher.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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