3 Turnaround Stocks for 2018 and Beyond

ZCL Composites Inc. (TSX:ZCL) and two other stock ideas offer dividend yields of about 4-10%.

Kay Ng

Kay began investing in dividend stocks around 2008 via the concept of value investing. Since then, she has expanded into growth investing, including in small caps. Her passion for investing has only grown over the years! After graduating from UBC with a BSc in Computer Science, she took university courses in financial markets, finance, and financial accounting. She has contributed her works to Motley Fool, Sure Dividend, and Seeking Alpha.

Published July 9, 2018 4:00 pm EDT

When stocks fall a lot, bargain hunters should investigate. Here are three stocks that have declined substantially recently that you can explore.

ZCL Composites Inc. (TSX:ZCL) stock has fallen about 31% in the last 12 months. It currently offers a 6.1% dividend yield.

ZCL manufactures and distributes fiberglass-reinforced storage tanks. Its core business provides underground storage tanks that store gasoline and diesel fuel for North American retail outlets.

ZCL’s corrosion-resistant tanks are environmentally friendly and are ideal for storing fuel, water, wastewater, and oil and gas. Fuel is its biggest market. The company has seven manufacturing plants: two in Canada, four in the U.S., and one in the Netherlands.

In May, when ZCL was trading at about $10, I’d concluded: “investors should hold off investing in ZCL.” At $8.86 per share as of writing, the stock is better valued. Investors looking for a turnaround opportunity can consider buying shares commencing at the $7.50-8.50 level.

The analyst consensus from Thomson Reuters Corp. has a 12-month target of $12.50 per share on the stock, which represents a whopping upside potential of 41% in the near term.

Exco Technologies Limited. (TSX: XTC) stock has declined about 14% in the last 12 months. Exco has a cyclical business, so a turnaround could take multiple years.

Exco designs, develops, and manufactures automotive interior trim components and assemblies primarily for passenger and light truck vehicles. Its Casting and Extrusion business primarily designs, develops, and manufactures die-casting and extrusion tooling and equipment for the automotive and industrial markets.

It currently offers a 3.8% dividend yield. It’s a well-managed company that has achieved returns on equity of +11% every year since 2011. It has increased its dividend for 12 consecutive years. There’s room for future dividend growth.

The analyst consensus from Reuters has a 12-month target of $11.30 per share on the stock, which represents upside potential of about 25% in the near term. Notably, the stock hasn’t shown any signs of bottoming yet.

Alaris Royalty Corp. (TSX:AD) stock has fallen about 29% in the last 12 months.

Alaris offers capital to private businesses that want to maintain the ownership in their companies but cannot get the capital they need from traditional means. In return, Alaris gets big cash distributions from them monthly.

For most (11 out of 15) of its partners, it receives huge distribution yields of 15% or higher. So, you can imagine how risky an investment in Alaris may be.

Alaris currently offers a 10.1% dividend yield. The analyst consensus from Reuters has a 12-month target of $19.70 per share on the stock, which represents near-term upside potential of about 23%.

Investor takeaway

Turnaround opportunities, including ZCL, XTC, and Alaris, can deliver outsized returns. However, fishing for the bottom can be challenging. So, keep your positions small if you want to make a bet.