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2 under-the-radar turnaround stocks with recovery potential

Buying shares which have fallen in value in recent months may seem like a risky move to make. After all, the trend is a downward one and further losses could be ahead. However, the reality is that in many cases the outlook for the company in question remains relatively upbeat. Therefore, a lower share price may make the risk/return ratio even more attractive to a long-term investor. With that in mind, here are two shares which could deliver improved share price performance after a disappointing period.

Improving performance

Reporting on Wednesday was BATM Advanced Communications (LSE: BVC). The provider of real-time technologies for networking solutions and medical laboratory systems delivered a rise in revenue of 10% in the first half of the year. Gross profit also increased after a period of meaningful investment in new products, capability and bolt-on acquisitions. Such investments have the potential to improve the long-term outlook for the business and place it on a firmer financial footing.

The company made solid progress in its Bio-Medical division, as well as in its Networking and Cyber divisions during the first half of 2017. It expects to make further inroads in these areas, with a target of gaining new customers and developing its sales potential. Government agencies continue to express interest in its Cyber division, with BATM’s order backlog increasing substantially compared to the same time last year.

The company’s increasingly positive outlook has the potential to deliver improved share price performance in future. In the last six months, its share price has fallen by around 10%. While it remains a lossmaking business and a relatively risky investment opportunity, it has the potential to recover in the long term.

Defensive option

Also disappointing in terms of its share price performance in recent months has been food and support services provider Compass Group (LSE: CPG). The company’s share price has declined by 5% in the last three months. However, it could easily recover and make strong gains in future.

One reason for this is the company’s defensive characteristics. It has a long track record of profits growth, and this could appeal to investors given the current geopolitical outlook for the world. Tensions regarding North Korea have already negatively affected investor sentiment and share prices. More could follow, and investors may become increasingly risk-off, thereby seeking more stable companies over the medium term.

With Compass Group forecast to increase its bottom line by 18% in the current year, it seems to offer significant growth potential as well as defensive attributes. Despite this, it trades on a price-to-earnings growth (PEG) ratio of just 1.2 at the present time. This suggests that it offers a wide margin of safety and that it could post significantly better share price returns in future.

Alongside its growth potential, the stock also has a growing dividend. It has risen by 49% in the last four years and with dividends covered more than twice by profit, more growth in shareholder payouts could be ahead. This could boost its 2.1% dividend yield.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. 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.