Do WM Morrison PLC, Royal Bank of Scotland Group plc and Standard Chartered PLC Have Recovery Potential?

Some investors spend their lives scanning the market for great recovery stocks. It isn’t hard to see why, given the rich pickings on offer if you get in before the fightback begins. The big question is whether the company is out for the count, or can come out swinging again.

Seconds Out!

Stricken supermarket WM Morrison (LSE: MRW) has been on the ropes for several years. As the lightweight among the big four, it was always going to be vulnerable to those aggressive German challengers Aldi and Lidl. Its failure to build an established identity among wealthier southern consumers left it embarrassingly short of punching power.

This year’s brief recovery seems to have petered out, with the share price down 9% in three months. Morrisons is in double trouble — forced to slash prices to compete in the supermarket price war, while losing sales to the discounters anyway.

Morrisons’ total sales, excluding fuel, fell 2.0% in the quarter to 1 November, which was faster than consensus forecasts, while price deflation, also excluding fuel, fell 2.2% for the quarter. Its dividend for the year to February 2015 was 13.65p. Next year you will get 5.16p, equivalent to a 3.1% yield. At least you know what to expect. Whether you want to pay 15.83 times earnings is a different matter. Personally, I like my recovery stocks cheaper than this.

A Stock To Bank On?

Investors seem to have lost faith in banking sector blow-out Royal Bank of Scotland Group (LSE: RBS) and understandably so, with the share price down 18% in the last year. This has been a rough year for all the bankers, with Barclays and Lloyds Banking Group both falling as well, although only by a relatively modest 5% each.

RBS posted a Q3 operating loss of £134m, down from a profit of £1.1bn year-on-year, as it continues to pay the price for past misdemeanours, notably a hefty £847m in restructuring costs. Perhaps the market is being too harsh since RBS is making progress in winding down non-core assets and can boast a strong common equity tier 1 ratio of 16.2%. Benign credit and bad debt conditions are also working in its favour.

But its shrinking investment banking division will reduce future profits, those banking scandals won’t die, and the government is delaying the next phase of the sell-off until the outlook is brighter. RBS will recover, given time, but, with no dividend, investors will see little reward until it does.

Standard Slips Again

When a company hits the rocks, as Standard Chartered (LSE: STAN) has done in the China Seas, the bad news comes crashing down in waves.The share price is down 40% in the past six months alone, making it one of the biggest shipwrecks on the FTSE 100 (and there are quite a few of those at the moment). Its luck is also out: it reported a Q3 loss of $139m, its first since the Asian crisis 15 years ago, thanks to a whopping £1.2bn loan impairment charge that wiped out its operating profits.

Standard Chartered further hit investor faith by announcing plans for a £3.3bn rights issue. New chief executive Bill Winters tried to raise spirits by setting out his new business strategy, but broker Macquarie sank investors morale by calling the plans “rather uninspiring” and postponing its expectation of a recovery from 2018 to 2020. Standard Chartered may eventually find a safe harbour, until then, expect more waves to come crashing in.

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Harvey Jones 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.