How to Find Stocks that may be Turnaround Candidates

Tom Gentile

Posted in Technical Analysis

By: Tom Gentile on September 30th, 2022 • 5 mins read

The markets have been beaten up pretty good this year.  This article will address that and then educate on how to find what may be deemed turnaround candidates for when things recover.

September is historically the worst month for the S&P500. It typically trades lower by an average of 0.5%.

This year it is down about 8% which is putting at risk of being the worst performing September since 2008.  Note the NASDAQ hasn’t fared any better as it is down 9.1%, which is also putting IT on track to be its worst performing month since 2008.

Today is the last trading day for September 2022 and it doesn’t look like it is going to end up as a bullish day, nor does it look like it will be a substantial enough of a bullish day, if it even ends up being one, that will make a dent in that month’s decline number.

A report from Marketwatch.com shows… Dow Jones Market Data found that the S&P500, in Octobers following a 7% or larger fall in September, rises 0.53% on average,  The S&P500 also sees a median gain of 1.81%.

DJ Market data also shows the S&P 500 has risen 46.15% of the time in Octobers that follow a 7% or more September decline.  This versus a rise 57.6% of the time for all other Octobers.

Will October be a ‘bear killer’?

There is a great deal of skepticism that October will be a bear killer in that it see a recovery.  Not a recovery back to highs, but it could see an increase percentage gain that offsets the bead performance it experienced this September.

You may agree that the approach of raising rates by the Fed is necessary to fight off inflation even at the risk of putting the economy into a recession to do so or not, but the fact remains that is an issue that we as investors and options traders must deal with.

If you are of the mind securities and other assets are oversold and due for at least a bounce or a small recovery there is a tact one can consider and that is looking for turnaround candidates.

Turnaround Candidates

A turnaround candidate is a security that is beaten down in price for a variety of reasons, but they area still deemed viable and important enough companies that they may find favor again with investors and see those investors come back to it and drive the price back up with their new found conviction.

I consider stocks trading at or near their 52-week lows as possible turnaround candidates.

For whatever the stocks are trading at these 52-week lows I look for research on what they are doing to rectify their concerns and see if that is enough for me to think investors will come back to it, which may bring  the share price back up.

I am not looking to eb a long-term investor in these, but I am looking to see if there is enough of a reason for a pop in price to a degree and options trade on it may be worth my time.

I also look at my tools and I use a scan called Money Calendar to see if there is a pattern setup in the Money Calendar data that shows a 1-year historical pattern of bullishness.

If there is, I then contemplate an option trade on it.

First, Find stocks at 52-Week Lows.

Log in to my tools at www.tomsoptiontools.com. Do the following sequence.  Stocks > Stock Analysis > Hi/Low.

You get to this page:

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Select the items on that page as shown below

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Click Search and you get a list that looks like this (September 30, 2022):

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I then cross reference if any of these tickers are on the Money Calendar scan.

Money Calendar is a scanning tool that looks for stocks or ETF’s that have traded higher or lower 9 or 10 of the past 10 years over a specific period of days.

If it finds one or more it lists them and calculates among other things the average profitable move higher or lower for those 10 years.  Again, these have to have traded higher 9 or 10 of the past 10 years over a date range.

Stock #84 is Lam Research (NASDASQ: LRCX)

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I found this stock trading almost at its 52-week low and it is also showing up on the Money Scan today with a bullish pattern.

If one wants to invest or trade in this and you want more than just the technical data for it, such as future earnings projections, any new products or management coming its way, work with your broker(s) to compile that additional research and see if you all believe it is a worthy investment.

Remember my team and I are options traders primarily so we would take the Money Calendar data and see if we can find an option trade that could become profitable if LRCX plays out at least as its average profit move over the past 10 years.

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If one subscribes at the monthly subscription level that gets access to the Money Calendar, click on the Money Calendar icon on the first page one sees when they log in.

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Click on the calendar day for the list of candidates for that day.

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What you see is LRCX from a start date of September 30 – November 9 may rise in price its avg. profit amount its done over the past 10 years for this period of days and that is $21.96 or 21.96-points.

As an investor, you may want this for more than a $21.96 move.  As a stock trader, this is the data it shows as possible, (but not guaranteed).

As on options trader we would look for a long call (or other bullish option trade) with an expiration just past its end date of November 9.

App: Toms Option Tools

Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.

Other times I will have other charts may work to amplify my educational points. 

Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.

Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.