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1 Easy Way to Spot Turnaround Stocks Before Everyone Else Does

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Image source: Getty Images

Written by Christopher Liew, CFA at The Motley Fool Canada

Studying sector-wide trends can help investors spot turnaround stocks and make firm decisions. Only three of the TSX’s 11 primary sectors had positive gains in 2022, although things are looking better for the majority, thus far, in 2023. Energy was the top-performing sector but had a weak start this year.

Meanwhile, the technology and materials sectors are back in positive territory after last year’s market selloff. The three sectors are ready to turn the corner, especially one constituent from each sector. Undervalued stocks Crew Energy (TSX:CR), K92 Mining (TSX:KNT), and Absolute Software (TSX:ABST) trade at discounted prices.

Longer-range asset-development plan

Crew Energy trades at a discount (-10.83% year to date), but the pullback is temporary. Based on market analysts’ price forecasts, the current share price of $5.02 could climb 62.7% to $8.17 in 12 months. This energy stock is a high-growth stock, given its 1,275.34% total return in three years, which translates to a compound annual growth rate (CAGR) of 139.4%.

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The $786.5 million growth-oriented natural gas and liquids producer commits to pursuing sustainable per-share growth by significantly increasing its size and scale. It operates a vast high-quality strategic resource in northeast British Columbia. Crew’s four-year plan (2023 to 2026) builds on the momentum gained over the last two years.

Management adds the new, longer-range asset development plan is a follow-up to the highly successful 2020 two-year plan. Upon completion, it should position Crew to significantly increase production and achieve its average annual volume target (61,000 barrels of oil equivalent per day).

Impressive mine performance

K92 Mining operates the Kainantu Gold Mine in the Eastern Highlands province of Papua New Guinea. This $1.7 billion gold, copper, and silver producer also explores and develops mineral deposits near the mine. The mining stock has gained 6.34% to $7.55 in the last 10 days and is down by only 1.56% year to date.

Management expressed tremendous excitement about its exploration programs for 2023 following impressive mine performance in the fourth quarter (Q4) 2022. John Lewins, K92’s chief executive officer (CEO) and director, said, “Once again, Kainantu achieved multiple operational records, delivering record mill throughput, total mined material, and underground development rates.”

Apart from achieving its annual production guidance, the quarterly production of 35,538 ounces AuEq (gold and silver combo) was the second highest on record.

Positive ARR growth outlook

Absolute Software is down 17.12% year to date ($11.66 per share) but should pick up steam anytime soon. Also, the decent 2.79% dividend should compensate while ABST recovers. Note that the technology sector was battered in 2022 but is now the top performer (+14.84%).

The $614.2 million company is the lone provider of self-healing, intelligent security solutions against cyberattacks globally. In Q2 fiscal 2023 (quarter that ended December 30, 2022), revenue increased 17% to US$57.2 million, although net loss grew 37% year over year to US$7 million.

Nevertheless, its president and CEO Christy Wyatt said, “We posted a solid performance this quarter against a challenging macro backdrop.” Jim Lejeal, Absolute’s chief financial officer, remains confident in the annual recurring revenue-growth outlook and will take measures to maintain strong margins.

Sector trends

Crew Energy, K92 Mining, and Absolute Software are due for a turnaround, if not breakouts, in 2023. You can tell from the prevailing sector trends.

The post 1 Easy Way to Spot Turnaround Stocks Before Everyone Else Does appeared first on The Motley Fool Canada.

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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Absolute Software. The Motley Fool has a disclosure policy.

2023