What is a turnaround stock?

It’s a positive reversal in the performance of a company’s stock. There are three main reasons why a company might turn its fortunes around – a spike in sales, cost-cutting measures and the launch of an exciting new product.

Where have you heard about turnaround stocks?

It’s hard to believe it now, but Apple’s stock was struggling following the tech bubble burst and strong competition from the likes of Microsoft. But the launch of a new product in 2001 – the iPod (you may have heard of it!) – transformed its outlook, and it hasn’t looked back since.

What you need to know about turnaround stocks.

Buying turnaround stocks can be very risky. By their very nature, they’ve been underperforming somehow, and it could be that internal challenges or uncertain trading conditions prove insurmountable. Because of this, the potential to lose money from investing in them can be high. By the same token though, the potential rewards may be above average.

It's all about perfect timing, but even if you don’t get in right at the beginning of a turnaround, you can still profit from a rising company that looks like it could have long-term potential.