The Motley Fool

1 turnaround stock I’d buy and 1 I’d sell in 2018

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.

Dice engraved with the words buy and sell, possibly in FTSE 100
Image source: Getty Images.

The uncertain outlook for oil prices in 2018 and beyond means that I am happy to sit on the sidelines rather than invest in London’s quoted crude drillers .

Fossil fuel giant Cairn Energy (LSE: CNE) is one such share I am avoiding today. Rather, I  would consider cashing out of the business today despite a stable operational update released on Tuesday.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Bubbly update

In today’s bright market statement, chief executive Simon Thomson declared today that “over the last 12 months, Cairn has achieved several strategic milestones and is well positioned to deliver on its strategy in 2018.”

For the full year, Cairn said that it expects production to come in at between 17,000 and 20,000 barrels of oil per day, with plateau production from Catcher and Kraken expected at the mid-point of 2017. The FTSE 250 business celebrated pulling maiden oil from these North Sea assets last year.

Looking elsewhere, the third phase of drilling at its JV in Senegal was completed in 2017, and Cairn said that it is now seeking development approval by the close of 2018. First oil from the SNE field is expected between 2021 and 2023, the business said.

And in other news, Thomson said that “we will begin a sustained drilling campaign in the UK and Norway where Cairn has built an extensive portfolio.”

Still too risky

With Catcher and Kraken steadily ramping up production, City brokers expect Cairn to finally flip into the black in 2017. Earnings of 8.7 US cents per share are forecast, and this is expected to improve to 12.2 cents next year.

But I am still not tempted to jump in right now. Instead, with the driller currently changing hands on an elevated forward P/E ratio of 34.4 times, I would consider shifting out before the newsflow worsens.

Crude prices are in danger of reversing again in my opinion, reflecting a hulking supply/demand imbalance that looks set to endure. This situation is casting a shadow on these earnings forecasts, not to mention Cairn’s already-stretched balance sheet (net cash dropped to just $56m as of December from $254m six months earlier).

And of course, the unpredictable nature of fossil fuel exploration and development means that any poor operational updates this year could drive Cairn’s share price sharply lower. There is just too much risk still facing Cairn today, in my opinion.

Defence darling

Those seeking a turnaround titan on safer footing may want to check out Avon Rubber (LSE: AVON) instead.

The business, which builds masks for the military, is expected to see its long record of double-digit earnings growth fall in the year to September 2018 as lumpy contract timings bite — a 16% profits fall is anticipated by City brokers. However, Avon is expected to get firing again with a 4% rise in fiscal 2019.

While the small cap carries a forward P/E ratio of 18.7 times, above the widely-regarded forward P/E ratio of 15 times, this is not a problem for me, despite predictions of a hefty near-term profits fall.

News of booming orders has sent the defence giant’s share price spiralling higher in recent months, and with defence budgets on the mend and conditions in the dairy market also getting better (Avon also makes hardware for milk extraction), the Melksham firm’s earnings outlook is likely to keep on improving.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Royston Wild 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.