Two top turnaround stocks that could make you rich

These companies are recovering rapidly from their problems and could produce attractive returns for investors.

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Over the past few years, several high-profile cyber attacks have disrupted operations at major companies, sending the demand for cybersecurity expertise and products skyrocketing. 

However, global cybersecurity and risk mitigation expert NCC (LSE: NCC) seems to have missed this opportunity.

Growing pains

As demand for cybersecurity expertise has spiked, NCC has seen the value of its shares fall by 40% year-to-date following two profit warnings. 

To try and stem the bleeding, management commissioned a strategic review, and it looks as if these actions are starting to pay off. Indeed, today the company published a trading update covering the three-month period from 1 June to 31 August ahead of its Annual General Meeting showing a 5.6% increase in continuing revenue to £62.7m. Management also reports that “implementation of the Strategic Plan is gathering momentum with a number of new initiatives underway.” The disposal of several non-core businesses is also progressing well. 

NCC is trying to turn itself around in the perfect environment. The size of its end market is multiplying, providing a tailwind to group growth. And I believe that this tailwind, coupled with management’s actions to restructure NCC’s offering, should lead to returns for investors in the months and years ahead. 

City analysts are already projecting a recovery next year with earnings per share growth of 13% pencilled in for the fiscal year ending 31 May 2018, followed by growth of 16% for the following year — a dramatic turnaround from last year’s decline of 43%. 

NCC isn’t the only turnaround story I believe it’s worth keeping an eye on. Cable solutions supplier Volex‘s (LSE: VLX) turnaround is also starting to gain traction after years of drastic cost-cutting and restructuring by management.

Beginning to pay off 

Volex’s problems began in 2012 when the company lost its primary customer and sales slumped. After hitting a high of 375p at the beginning of 2011, shares in the enterprise crashed to a low of 27.5p during 2016 as losses hit $8.5m. 

However, this year the firm’s fortunes have started to improve. For the year ended April 2, restructuring and cost-saving measures increased underlying operating profit, which strips out exceptional costs, by 26.6% to $9.1m, while underlying pre-tax profit grew 35% to $7.2m. Meanwhile, net cash rose to $11.3m from net debt of $3.2m in the year-ago period due to a focus on cash generation.

During the year, Volex secured purchase orders from four new customers, two in the online technology space, one from an electric car manufacturer, and the last one from a US engineering firm. So the company’s turnaround finally appears to be yielding results, and it seems customers are still interested in its offering. 

According to City analysts, earnings per share will fall around 11% for the year ending April 2018, as it seems the group will have to book further exceptional costs. Still, for 2019, lower one-off costs and a return to growth is expected with earnings per share of 6.3p projected. 

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.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of NCC. 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.

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