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2 stocks that may be turnaround stories in 2014

Being a value investor, I like to look in industries that are having a bad year or two. Market expectations get depressed right along with business conditions, opening opportunities for finding good companies sold off by investors.

Here are two engineering companies that have been on downward trends in share price, but have interesting side stories that could improve their earnings and shareholder returns to the upside.

UGL Limited (ASX: UGL) had troubles due to the mining pullback like many companies in its industry. The situation of more competitors bidding aggressively for fewer available mining contracts has reduced revenue and lessened profit margins.

While this continues, the bright spot for the company is its property services division, DTZ, which operates in 52 countries. In the first half of FY2014, its earnings before interest and tax grew 27% and contributed more earnings than the engineering division.

The company is considering spinning off DTZ to maximise value, so this may be an opportunity for shareholders to get a boost in returns if it is floated.

As the company moves toward a final decision, it does offer a dividend yield of 5.6%, 50% franked.

Leighton Holdings Limited (ASX: LEI) received a proportional takeover offer from its largest shareholder so that it could take more control in the company boardroom. Revenue and profit has trended up in the past two years after taking a big dip in 2011.

The current issue is the quickly increasing receivables figure that shows the revenue it should receive from customers but hasn’t been collected yet. With the new management changes, the company will be focusing on reducing that amount and collecting what it is owed.

This may result in some write-downs, so despite the full year results of a 13% rise in net profit, this may weigh on the share price. Following the stock for now may be the best move until further improvements are reached by management.

Its dividend yield is 5.2%, 50% franked.

Foolish takeaway

Leighton’s business performance should improve when it has been streamlined into a leaner business. Investors new to the company may have an opportunity to get in at a low level as the restructuring is taking place. Just do your homework by keeping up with the progress.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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