Are Whitbread plc, Gulf Keystone Petroleum Limited and Lonmin plc the best turnaround stocks EVER?

Should you pile into these three stocks right now? Whitbread plc (LON: WTB), Gulf Keystone Petroleum Limited (LON: GKP) and Lonmin plc (LON: LMI).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Whenever a company endures a tough period, it provides long term investors with an opportunity to buy into a potential turnaround story. Clearly, this doesn’t always pay off and the company in question may continue to deliver disappointing profitability and share price falls. However, when a business is able to adopt a refreshed strategy and benefit from an improved operating environment, significant capital gains can result for those investors who took a risk and bought-in at a low ebb.

One such opportunity is Whitbread (LSE: WTB). The owner of Costa Coffee and Premier Inn has recorded a share price fall of 21% in the last year and while some of this is justified, its shares appear to have more than adequately priced-in the risks they face. Namely, concerns surrounding the impact of the new living wage as well as doubts about the prospect for consumer confidence as UK interest rates begin to rise.

However, with Whitbread trading on a price-to-earnings growth (PEG) ratio of just 1.5, it seems to offer a sufficiently wide margin of safety to warrant investment. And with demand for good value hotel rooms likely to remain buoyant and its Costa Coffee chain being the dominant player in a hugely popular space, Whitbread’s long-term future remains sound.

Risky-yet-enticing

Also offering substantial turnaround potential is Lonmin (LSE: LMI). Unlike Whitbread, the risks present in its industry have come home to roost and the mining company has been lossmaking in each of the last two years.

Clearly, this is largely linked to the decline in commodity prices and while this risk remains, an improved profit outlook as well as a low valuation indicate that Lonmin could continue the turnaround story that’s set to see its bottom line move from red to black next year.

For example, Lonmin’s share price has fallen by 99.9% in the last five years and while its asset base may not be as strong as it once was, this indicates that there’s tremendous scope for capital gains if investor sentiment improves. With a refreshed strategy, a recent fundraising and a brighter outlook for commodity prices, Lonmin is a risky-yet-enticing recovery play.

Look elsewhere?

Meanwhile, Gulf Keystone Petroleum (LSE: GKP) has also suffered from the impact of falling commodity prices, with its shares being down by 88.2% in the last year. However, while a number of its sector peers have staged a recovery in recent months as the price of oil has soared from $28 per barrel to around $50, Gulf Keystone Petroleum has been left behind. In fact, in the last three months its shares have fallen by 67% while the price of oil has risen by almost 30%.

Clearly, Gulf Keystone Petroleum’s internal challenges are more than offsetting a brighter external outlook. And with payment problems likely to remain as well as the geopolitical outlook for the Northern Iraq region being highly uncertain, it may be prudent to look elsewhere for turnaround potential.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After rising 29%, is there still any value in the Lloyds share price for investors?

FTSE 100 bank Lloyds has been gaining momentum in recent times. But is there any value left in its share…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

9%+ yields! Here are 2 of the best FTSE 100 dividend shares to consider buying

This Fool has been scouring the UK stock market in search of the best dividend shares. He are two he…

Read more »

Young woman holding up three fingers
Investing Articles

New to investing? I wish I’d known these 3 things Warren Buffett swears by

Ben McPoland considers three Warren Buffett lessons that have helped his investing returns improve a lot over the last few…

Read more »

Investing Articles

I remain bullish on Nvidia stock despite its overvaluation

Our author says Nvidia stock is overvalued right now. However, he still thinks it might be worth him buying because…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d take the Warren Buffett approach to building a passive income empire

Christopher Ruane explains how he'd try to earn passive income streams from the stock market by learning from billionaire investor…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

2 of my most amazing buys from the FTSE 100 for passive income

The FTSE 100's home to a number of exceptional shares offering the prospect of handsome income. Here are two to…

Read more »

Investing Articles

1 AI stock to buy and hold for 10 years

AI spending's expected to soar in the next decade, according to most experts. Here's one stock to consider buying to…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Dividend deals! 2 passive income stocks that still look undervalued

Royston Wild explains why these FTSE 250 passive income stocks might STILL be too cheap to miss, despite theirrecent price…

Read more »