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These 2 under-performers could be the turnaround stocks of the year

Institutional analysts had such high hopes for international sales, marketing and support services group DCC (LSE: DCC) in 2018, with 86% slapping on a ‘buy’ rating. They were also bubbling with optimism over the prospects for food delivery operation Just Eat (LSE: JE), with 79% hailing it a ‘buy’.

Eat that!

It was not to be, with the stocks falling 19.8% and 24.9% respectively over the year, according to research from AJ Bell. This kind of unpredictability won’t stop me looking for stock market winners and it won’t stop analysts either – 93% are hailing DCC a ‘buy’ for 2019, the highest percentage across the FTSE 100, although they have cooled on Just Eat.

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Both stocks had enjoyed serious success until last year’s hissy fit. DCC is up 130% measured over five years. Just Eat is up 95% measured over three years and both numbers account for recent slippage.

Bit pricey

DCC didn’t do so badly, though, posting a 17.2% rise in interim pre-tax profits in November to £85.9m, as three of its divisions reported higher earnings to offset seasonal weakness in the fourth. Overall, group revenue increased 24.7% to £7.4bn. Investors reaped the benefit, with the interim dividend hiked 10% to 44.98p per share.

The Dublin-headquartered group is growing through acquisitions and is looking to raise up to £650m in an institutional share placing to fund further transactions. Earnings growth seems to be slowing, though, with five years of healthy double-digit growth forecast to shrink to 4% and 3% in 2020 and 2021. This could be a worry given that the stock is priced for growth, with a forecast P/E of 17.2 and PEG of 4, although Royston Wild still reckons this is a fair price.

Hard to swallow

The dividend yield is relatively low at 2.3%, but with generous cover of 2.8. With plenty of exposure to the US and Canada, it does offer some Brexit-proofing. Analysts reckon it will fly this year, but they’ve been wrong before.

Pioneer fast food portal Just Eat looked to have run out of steam and it was demoted from the FTSE 100 in December, at which point investors suddenly regained their appetite. The stock is up 24% measured over the past month despite the exit of CEO Peter Plumb after pressure from US activist investors.

Up and down

Buyers have been put off by growing competition from rivals such as Deliveroo and Uber Eats, amid fears the takeaway delivery market could become saturated with more than just fat. Plus it also has to invest heavily to develop delivery solutions for branded restaurants such as KFC and Burger King.

Back in 2014 its earnings grew a massive 200% but are forecast to drop 8% this year, then rebound 54% in 2020. Revenues of £770m in 2018 are expected to have jumped to £1.23bn by then, suggesting Just Eat can still bring home the bacon.

Comeback kid

Growth will still need to be quick, though, given its pricey looking valuation of 37.7 times forward earnings. A price-to-sales ratio of 4.8 also looks toppy. There’s no dividend in this, its growth phase.

I am impressed by Just Eat’s recent recovery and prospects, but it is vulnerable to tough competition and changing trends. However, its recent fightback is undeniably impressive.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat. 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.