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Highlights
- Look for undervalued ASX stocks that could see rebounds after a tough period.
- Companies going through a management revamp may offer great turnaround potential.
- The ASX 200 saw uneven performance in 2024, with a few stocks playing key roles in growth.
One of the intriguing investment strategies that has resonated in the US market, known as the "dogs of the Dow", can also be applied to ASX stocks with promising results. This approach suggests that companies facing difficult years but maintaining dividend payments may eventually deliver strong returns, often driven by managerial change or mean reversion.
Several examples in the Australian market show how this works in practice. Notably, in 2024, stocks like Downer EDI (ASX:DOW) and Insignia Financial (ASX:IFL) made remarkable turnarounds. Both companies, which had experienced tough patches, saw their shares increase significantly by 20% and 40%, respectively. This recovery was largely driven by management overhauls and a strategic focus on core business areas, which ultimately proved beneficial for shareholders.
Despite these positive developments, the market remains full of potential "dogs" – companies that have been underperforming and are now in the midst of significant restructuring. Companies like Star Entertainment (ASX:SGR), Lifestyle Communities (ASX:LIC), and Ramsay Health Care (ASX:RHC) are among those showing signs of recovery. The challenge for investors is determining which of these companies are furthest along in their turnaround phases, potentially giving them a leg up in the coming months.
However, while many stocks within the ASX 200 (ASX:XJO) showed solid performance in 2024, growth was somewhat uneven. The broader market showed an overall rise of 7.5% (12.5% with dividends reinvested), but not all stocks contributed equally to this rise. Companies like Commonwealth Bank (ASX:CBA) played a key role, with its 37% increase being the main driver for the ASX 200’s overall performance. Other significant performers included Westpac (ASX:WBC), Wesfarmers (ASX:WES), and Aristocrat (ASX:ALL), highlighting that a few key stocks made all the difference for index-level returns.
For active investors, navigating this choppy landscape involves considering strategies like the "dogs of the ASX." This method involves identifying undervalued companies that might rebound following significant restructuring or external factors. While it requires careful analysis, those who focus on turnaround opportunities or add proven performers like Commonwealth Bank to their portfolios might see greater returns as the market continues to evolve. The key takeaway: the potential for returns exists in unexpected places when one looks beyond just the top-performers of the market.
