4 Stocks With Turnaround Potential: Rolls-Royce Holding PLC, Royal Bank Of Scotland Group plc, G4S plc And Royal Mail PLC


When it comes to turnaround potential, there are few stocks that can match RBS (LSE: RBS) (NYSE: RBS.US). That’s because the part-nationalised bank has had a very tough handful of years that have seen it post huge losses and offer little promise for its investors. So, suffice to say, RBS is starting from a hugely challenging position.

However, it has the scope to turn its fortunes around. It is expected to post impressive earnings figures in each of the next two years and, with its shares trading well below net asset value (RBS has a price to book ratio of just 0.67), it offers a very wide margin of safety. And, with interest rates set to stay low for a number of years, bad loans should ease and demand for new loans should rise, which makes the banking sector and, in particular, RBS, a great place to invest at the present time.


Between 2011 and 2013, Rolls-Royce (LSE: RR) posted a growth in earnings of 69%. For a mature company operating in a mature industry, that’s a very strong growth rate. And, despite a profit warning and disappointing performance expected this year, Rolls-Royce can return to a relatively high level of earnings growth over the medium term.

A key reason for this is an improving macroeconomic outlook for the global economy, with demand for Rolls-Royce’s products set to rise in the months and years ahead. This looks set to push its bottom line up by 9% in the current year and, with a price to earnings (P/E) ratio of 16.2, Rolls-Royce looks good value when its financial strength and competitive advantage are taken into account.


Since experiencing a challenging period where allegations of wrongdoing regarding government contracts were raised, G4S (LSE: GFS) has gone from strength to strength. In fact, its share price has risen by 25% in the last year, with G4S all set to turn around its disappointing financial performance over the next two years.

For example, G4S is expected to increase net profit by 21% in the current year, and by a further 14% next year. That’s significantly ahead of the wider market growth rate and, despite this, G4S trades on a P/E ratio of 19.7, which represents only a modest premium to the FTSE 100’s P/E ratio of 16. As such, G4S represents good value for money, with it having a price to earnings growth (PEG) ratio of 0.9, which indicates that its share price is set to head much higher.

Royal Mail

While there is considerable pressure on Royal Mail (LSE: RMG) at the present time from alternative parcel carriers, its future still appears to be relatively bright. Certainly, its shares have disappointed in the last year and have fallen by 11%. In addition, its bottom line dropped by 6% last year, which is clearly a disappointing result for its investors.

However, Royal Mail is forecast to bounce back, with growth of 23% in its net profit for the year just ended. And, with its shares trading on a P/E ratio of just 13.9, there is considerable upside. Meanwhile, a dividend yield of 4.5% appears to be sustainable and could appeal to income-hungry investors over the medium term, as the speed of interest rate rises is likely to be somewhat pedestrian.

Of course, Royal Mail, RBS, Rolls-Royce and G4S aren't the only companies that are well-placed to achieve successful turnarounds.

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Peter Stephens owns shares of Royal Bank of Scotland Group. 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.