Retirement Investing In Low-Priced And Turn Arounds Are Stocks Ready To Bounce Back

The real key to success in the stock market is knowing how to recognize value. Stock value has little to do with a good company versus a bad company. A top-quality large company selling at a high price/earnings multiple is less attractive than a lesser-quality company selling at a depressed price in terms of its past and future earning power, working capital, book value and historical prices.

Here’s what smart analysts look for as to value:

Turnaround Stocks And Signs to Look For

Stocks that crash are rarely good buys despite their low prices. Such stocks can be stuck at very low levels for a long time.. .and the firms can even go bankrupt and wipe out shareholders. Still, some stocks that have fallen sharply become turnarounds with high profit potential. Good signs include:

• Thc company’s debt level is dropping. .

• Corporate insiders, such as top executives and board members, are buying.

• New management has been brought in.

• Price-to-sale ratios are low, and recent one-year price appreciation is strong.

• Stocks that have just made a new low for the past 12 months.

• Companies that are likely to be liquidated. In the process of liquidation, shareholders may get paid considerably more than the stock is selling for now.

• Unsuccessful merger candidates. If one buyer thinks a company’s stock is a good value, it’s possible that others may also come to the same conclusion.

• Companies that have just reduced or eliminated their dividends. The stock is usually hit with a selling wave, which often creates a good buying opportunity.

• Financially troubled companies in which another major company has a sizable ownership position. If the financial stake is large enough, you can be sure that the major company will do everything it can to turn the earnings around and get the stock price up so that its investment will work out.

• Stocks that are totally washed out and where all the had news is out.
are also opportunities. The stock usually has nowhere to go but up.

How to be sure a stock is truly washed out:

• Trading volume slows to practically nothing.

• No Wall Street research analysts are following the company anymore.

• No financial journalists, stock market newsletters or advisory services are discussing the company.

• Selling of the stock by the company’s management and directors has stopped.

Signs of a turnabout:

• The company plans to get rid of a losing division or business. If so, be sure to learn whether the company will be able to report a big jump in earnings when the losing operation is sold.

• The company is selling off assets to improve its financial situation and/or reduce debt.

• New management comes on board with an established track record of success with turnaround situations.

• Management begins buying the company’s stock in the open market.

Also, be sure to follow 13(d) statements filed with the Securities and Exchange Commission (SEC). A company or individual owning 5% or more of a public company must report such holdings to the SEC. If any substantial company is acquiring a major position in a company, it’s possible that a tender offer at a much higher price is in the wind.