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7 Blue-Chip Stocks That Are Due for a Turnaround

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If you had invested $100,000 five years ago in a low-cost fund that tracks Standard & Poor’s 500-stock index, you’d be sitting pretty today. Over that period, the index has returned an annualized 14.6%, so you would have almost doubled your money. But not every company in the S&P 500 joined the party, for reasons ranging from fickle fashion tastes to plunging commodity prices.

In a world where past pain is often a precursor to future gain, Wall Street's dustbin can be a great place to find companies that have the potential to come back and make investors a tidy profit in the process. But turnaround investing requires patience. It can take a year or more for these kinds of companies to work through their problems.

To identify stocks that could beat the market over the next five years, we started with a list of the worst performers in the S&P 500 over the past five years. Beyond that, we looked for stocks with three-year share-price targets in Value Line that are at least 50% higher than today's prices. We excluded energy stocks, most of which rise and fall with the price of oil and natural gas, a subject on which we’re agnostic.

For those who believe that good things come to those who wait, here are seven turnaround stocks for long-term investors.

Share prices and returns are as of September 19; price-earnings ratios reflect projected earnings over the next 12 months.

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