Both younger and older investors enjoy some benefits their counterparts don’t. Older investors tend to have more money to invest, but they are closer to retirement, so they have to be a little bit more conservative about their investments than the younger investors. On the other hand, while younger investors tend to have less money to begin with, they have more time to recuperate any losses they may sustain during their investment journey, which allows them to make some “braver” decisions. The portfolio I’m suggesting here might be well suited for some younger investors who are in their 20s and 30s (I know, 40 is the new 20, but still). This portfolio will consist of well-known, established companies with a long history of success that are in the middle of a turnaround efforts and can possibly result in great returns when and if their turnaround is successful.
1. Nokia Corporation (ADR) (NYSE:NOK): Until a few years ago, Nokia Corporation (ADR) (NYSE:NOK) was the first thing that came to mind if someone heard the words “mobile phone” or “cell phone.” The company enjoyed success for many years, as it was known as a company that builds durable, strong, and high quality phones. In the last few years, as Apple Inc. (NASDAQ:AAPL) and Samsung were in attack mode, Nokia Corporation (ADR) (NYSE:NOK) was left in their dust. At the moment, the company is in the second year of its restructuring efforts with CEO Stephen Elop, and things seem to be turning around for the company. Nokia Corporation (ADR) (NYSE:NOK) currently trades for around $3.50 per share and it can easily see above $10-12 per share in as short as a few years if its turnaround efforts are successful.
2. Hewlett-Packard Company (NYSE:HPQ): After changing CEOs as often as many companies change their shift managers, the company finally settled on Meg Whitman. Even though the stock has seen a rally in the last few months, it is still worth half of what it was worth 2 years ago. As Hewlett-Packard Company (NYSE:HPQ) trades for less than 10 times its annual cash flow, it has a lot of room to go up once the turnaround is successful. The company even pays a generous dividend yielding above 2% so that the faithful investors can get paid for their patience.
3. Research In Motion Ltd (NASDAQ:BBRY): The company has lost 85% of its value in the last 5 years due to competition from Apple and Samsung. Currently, it’s fighting back for a comeback. BlackBerry enjoys a positive cash flow, even though its earnings are in the negative. If BlackBerry 10 is remotely successful and the company regains the trust of investors, it can easily triple within the next 2-3 years.
4. Apple Inc. (NASDAQ:AAPL): Apple Inc. (NASDAQ:AAPL) is a successful company that generates cash flow almost as easily as the Fed does, and I realize that it is not a “turnaround” company; however, investors sold this company off in the recent months and there is plenty of upside in Apple Inc. (NASDAQ:AAPL) once investors’ sentiment comes back.
Sooner or later investors will realize the value in this company and it will return back to where it was a few months ago. I wouldn’t be surprised if Apple Inc. (NASDAQ:AAPL) doubled in the next couple years.
5. Sony Corporation (ADR) (NYSE:SNE): The company that produced some of the most popular household electronics in the 80s and 90s has been burning through cash for the last few years. As a result, the company has lost nearly 60% of its value in the last 5 years, despite a rally it’s been enjoying in the last few months, which added 75% to the share price since November. There is still a lot of room for this company to appreciate if the turnaround efforts are successful. The company can easily double in a matter of few years if it becomes profitable again, and this is becoming more possible as the Japanese currency gets cheaper.
Keep in mind that while some of these companies have already made a lot of progress in their efforts of recovery, some are just in the beginning of recovery. Buying companies that are in the middle of a restructuring is a dangerous game and it involves more risk than usual, which explains the potential for high rewards. This is why younger investors that have more time until their retirement should be the ones to adopt a portfolio like this. Over time, I will watch the performance of this portfolio and provide a quarterly report on it when I can. We will see how this portfolio performs.
Note: This is just an experimental simulation I am running. I am not actually building this portfolio, even though I own shares of some of the companies mentioned here.
The article The Turnaround Portfolio For Young Investors (Part I) originally appeared on Fool.com and is written by Jacob Steinberg.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
