Can AMP Limited (ASX: AMP) represent one of the best turnaround blue-chip stocks given the near 25% pullback in its share price over the past two months and the new appointment of a highly regarded chairman?
AMP may yet make a fool of us, according to UBS who believes the stock is nothing more than a value trap.
Few would argue that the stock is looking cheap on traditional valuation measures and its juicy 10% trailing yield if you included franking credits, but that hasn't stopped UBS from urging investors to dump the stock, according to an article in the Australian Financial Review.
The broker believes that AMP will need two to three years to rebuild itself before "management, structural, operational and governance stability returns".
This is despite the fact that AMP had appointed the former Commonwealth Bank of Australia (ASX: CBA) head David Murray to be its next chairman after Catherine Brenner was forced to resign amid shocking revelations of bad corporate behaviour at the Banking Royal Commission.
Even Murray had acknowledged that he has the toughest job in corporate Australia and investors shouldn't underestimate the work needed to turnaround the tattered and tarnished AMP.
Going by the broker's estimates, the stock will need to fall well under $4 before it will look appealing to bargain hunters.
The stock is currently trading at around $4.14 and UBS has slashed its price target on AMP to $3.80 from $5.40 a share.
"Although cost and net flow adjustments we've made as part of this note have only impacted AMP EPS by 8% (FY21E), there are, in our opinion, numerous risks and operational challenges that can't be readily quantified," said UBS.
The uncertainty over regulatory changes in the industry in the wake of the Royal Commission has prompted the broker to also cut its recommendation on IOOF Holdings Limited (ASX: IFL) to "neutral" from "buy", which could explain the 3.3% drop in the stock to $9.22 ahead of the close today.
In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is up 0.3% as the big banks, which are also fronting the Royal Commission for bad behaviour, have found their feet with good profit results from Westpac Banking Corp (ASX: WBC).
If you are looking for a sector with a much brighter outlook, the experts at the Motley Fool may have just the thing for you. They have produced a free report on a niche sector that is expected to have a big impact on our market in 2018 and beyond.
Follow the free link below to get your copy and to find out what stocks are best placed to ride this emerging boom.
