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Every year, many of the biggest winners on Wall Street are companies that have been troubled but resolved their problems and surfaced once again as some of the year’s greatest success stories. However, this doesn’t happen by magic. It takes thorough and skillful study of any turnaround stock candidate’s fundamentals to be able to select those candidates with the greatest profit potential. The Turnaround Letter has assembled a comprehensive list of basic strategies to employ to pick the most promising contrarian investing opportunities. Recently, we have been profiling these common-sense strategies and now have one more to add to the list: watch media headlines.
Negative media headlines can be a great source of turnaround ideas. Stories about struggling companies, management turmoil, failed strategies, large financial losses, industrial accidents, lawsuits and the like can drive a stock to well-below reasonable levels and may provide a buying opportunity. Like all Wall Street axioms, however, “buy on bad news” must be accompanied by careful analysis to evaluate the potential for turnaround success.
Another Wall Street axiom notes, “there is no such thing as only one cockroach.” Translated into regular English, this means that one bad headline is usually followed by a long stream of bad news. So when an appropriate negative news story appears put that company on your list of possible turnarounds--but wait for more signs before rating it a probable turnaround investment opportunity.