Buying shares in companies that have delivered disappointing returns in recent months can be a lossmaking strategy at times. Momentum can be on the downside and this can lead to further falls in a company’s share price.
However, falling share prices can also present opportunities for investors to profit. They may offer a wider margin of safety than they previously did, and this can lead to high returns over a sustained period of time. Certainly, it can take time for those gains to be realised, but in the long run the idea of buying low and selling high can be highly effective. With that in mind, here are two underperforming stocks which could post successful turnarounds.
Reporting on Thursday was oil and gas company Amerisur Resources (LSE: AMER). The South America-focused business reported encouraging results regarding Platanillo-25, which is a medium step out directional well that was recently drilled. The outcome of the drilling supports the view that there is significant further upside in the Platanillo field.
It was drilled to a total depth of 8,699ft and the company is now side-tracking Platanillo-25 in order to locate a production well further up-dip and nearer to Platanillo-21. There it expects to find better reservoir quality and additional pay thickness, which could mean more sustainable production. Once the side track is complete, Platanillo-27 will be drilled.
The company also reported that the long-term test (LTT) off Matiposa-1 is on track to start at the end of October. This could help to diversify the company’s production base, and will also add further material production to the company in the near term.
With progress being made on its strategy, Amerisur could become more popular among investors and this could help to push its share price higher. Clearly, it is dependent upon further news from its projects, but it appears to have growth potential in the long run due partly to its price-to-earnings (P/E) ratio being only 11.2.
Also offering growth potential in the long run is sector peer Ophir Energy (LSE: OPHR). The Asia and Africa-focused company is forecast to move back into the black in the next financial year, with a pre-tax profit of £22m being anticipated by the market. This could help to improve investor sentiment in the stock and may lead to an improved outlook for its share price following a fall of 13% during the last year.
Clearly, the company’s financial outlook is dependent on the oil price. In recent months, it has increased as supply cuts have started to rebalance demand and supply across the industry. Looking ahead, further rises could be possible due to the potential for further cuts and continued growth in demand. Therefore, now could be an opportune moment to buy a slice of Ophir Energy ahead of what may prove to be a stronger period for the wider oil and gas industry.
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Peter Stephens does not own shares in any company mentioned. The Motley Fool UK has recommended Amerisur Resources. 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.