Investing in out-of-favour shares can be a rewarding, albeit risky, investment strategy.
The key to success is finding the shares that have the ability to successfully turn things around and avoiding those shares that are in structural decline or facing long-term headwinds.
While not every turnaround opportunity will result in impressive returns, I think investors should consider these three beaten down options:
Bellamy's Australia Ltd (ASX: BAL)
The Bellamy's share price has been a disappointing performer during the last 12 months, falling approximately 54% over the period. This has been driven by the negative impact that delays to gaining SAMR accreditation for its organic infant formula has had on its sales. By not being able to sell its products in mainland China, the company has lost a major revenue source that the daigou channel has failed to offset. I'm optimistic that the company will be granted its accreditation in the near term, which could lead to a strong rebound in sales in FY 2020. This could make it worth considering a small and patient investment in Bellamy's shares.
Bingo Industries Ltd (ASX: BIN)
The Bingo Industries share price has tumbled a sizeable 34% since this time last year. The majority of this decline occurred at the start of 2019 when the waste management company downgraded its full year guidance due to the faster than anticipated softening in multi-dwelling residential construction activity across its key markets. Since then the company has completed the acquisition of Dial a Dump Industries. This acquisition has the potential to be a game-changer and will diversify its business significantly. In light of this, I'm confident that Bingo will return to form in FY 2020 and deliver strong profit growth.
Costa Group Holdings Ltd (ASX: CGC)
This horticulture company has seen its share price crash 54% lower over the last 12 months. A series of guidance downgrades have put significant pressure on its shares over this time. The most recent of these downgrades came last month when Costa downgraded its calendar year 2019 earnings guidance at its annual general meeting. Due to issues including lower yields and pricing pressures, Costa expects NPAT-SL to be in the range of $57 million to $66 million this year. This will be an increase of just 0.7% to 16.6%, compared to its previous guidance of at least 30% growth. Whilst this is bitterly disappointing, I feel its shares have now fallen to a level that offers a compelling risk/reward.
