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Are Lonmin Plc, Glencore PLC & Aggreko plc The Perfect Turnaround Plays?

Shares in struggling platinum miner Lonmin (LSE: LMI) popped 10% higher this morning, despite the firm unveiling a $2.3bn loss for the year ending 30 September.

Investors appear to be cheering the firm’s announcement that it will raise $407m through a rights issue that will be priced at 1p per share — a 94% discount to Friday’s closing price!

Shareholders will be entitled to buy 46 new shares for every one they currently own. If the rights issue sounds desperate, that’s because it is. Lonmin’s lenders won’t renew the firm’s borrowing facilities until this rights issue is completed.

In a letter to shareholders, Chairman Brian Beamish warned recently that the company could cease trading if shareholders do not approve the rights issue. In my opinion, this would almost certainly leave the shares with nothing.

The big question is whether Lonmin’s business can be made profitable at with platinum prices at their current level. Although revenue rose by 33% to $1,293m last year, the group’s underlying operating profit fell to a loss of £134m.

Lonmin’s operations were hampered by strike action last year, but it’s clear that further cost savings are required to make the firm’s business sustainable. My feeling is that it might just be possible, but it’s not a sure thing.

Aggreko

Shares in temporary power specialist Aggreko (LSE: AGK) rose by 8% this morning after the firm confirmed full-year guidance for a pre-tax profit of £250m-£270m. Aggreko shares fell sharply in July after a profit warning and remain down by 33% on the year to date.

Today’s trading update suggests that Aggreko’s business may be getting back on track. It could be a decent recovery buy. The shares currently trade on 13.5 times 2015 forecast earnings with a prospective yield of 2.7%.

The main risk, in my view, is that profit margins will be consistently lower in the future than in the past, not least because of the oil market crash. Despite this, I believe the shares could be a buy at up to 1,000p.

Glencore

Glencore (LSE: GLEN) stock is down 60% this year, but the City is no longer pricing the company for failure.

Last week, analysts at Deutsche Bank upgraded Glencore to a buy, commenting that “rapid debt reduction plans” have reduced the balance sheet risks associated with the firm. Further asset sales are expected early next year, says the bank, which now has a 200p target price for Glencore shares.

The latest consensus forecasts suggest that Glencore could report earnings of $0.12 per share in 2016m, putting the firm on a 2016 P/E of 15. Analysts expect a dividend payment of about 4.4p per share next year, giving a prospective yield of 3.8%.

Glencore shares also trade at a 40% discount to its last reported book value of 200p per share. However, if Glencore writes down the value of any assets in its 2015 results, then this discount could fall — it isn’t necessarily a reliable indicator of value.

Investing in out-of-favour stocks like Lonmin, Glencore and Aggreko could deliver big profits, but there are risks.

These companies could be falling knives that will slash your investing profits.

If you're hunting for share ideas with exciting upside potential, I'd suggest a look at "5 Shares To Retire On".

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Roland Head 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.