One of the most lucrative, if challenging, endeavors in the stock market is searching for stocks to buy that have fallen but are ready to take off to new highs.
The good news: It can be done - and deliver returns like you've never seen.
I like to call them "turnaround stocks."
The typical turnaround stock has stumbled badly, with the share price punished severely for overblown media mishaps or trouble in the sector.
That's why finding turnaround stocks to buy is not for everybody. These stocks can be volatile in the short run.
But the long-term returns for willing investors often can be nothing short of spectacular. The key is a portfolio that can handle volatility and an investor with patience for the stock to climb high again.
There are a handful of potential turnaround stock candidates I've spied in the market today, like these two examples...
Turnaround Stocks to Buy Now
One such candidate right now is Atlantic Power Corp. (NYSE: AT).
The company has seen its stock slashed this year from more than $10 a share to less than $5. A weak economy and high leverage forced the company to cut its dividend by more than 60%. AT fell off a cliff after the payout cut announcement on Feb. 28, slipping 40.7% by Mar. 4.
But the reason this is a potential turnaround stock to buy is that this company appears to have the means to weather the storm and get back on a profitable track long term.
AT has a strong collection of electric power generation assets, with 29 plants capable of producing more than 2000 megawatts of electricity. The majority of its plants produce clean energy using solar, wind, biofuels, and natural gas to produce power. All of the plants are located in major markets across the United States and Canada.
The company is focusing on paying down its debt load to reduce the chance of future financial problems. In the last quarter it paid down more than $170 million of long-term debt and is looking to sell non-core assets to further reduce indebtedness. Even after cutting the dividend, the shares still yield more than 8% at the current price. Atlantic Power shares sell for about one-half of book value and appear to have substantial recovery potential over the next few years.
Patient investors could easily see the stock double back to where it was before the dividend cut.
This next potential turnaround stock to buy has ties to the lucrative oil and gas industry...
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of "Max Wealth" and Heatseekers.