Who doesn’t like a turnaround stock, in theory?

You pick a company at its nadir and wait as they bound from strength to strength, before selling up, bragging a bit on Hot Copper, and hitting the Med on a boat with a a fruity cocktail.

Unfortunately pretty much every ‘turnaround stock’ people find is actually a ‘falling knife’: it’s still going down and you’ll sustain some nasty injuries trying to catch it.

However, Cyan Investment Management’s Dean Fergie is a bit of a fan of turnaround stories: he’s invested in Murray River Group (ASX:MRG), the raisin-growing small cap that got two months of lift after listing before starting a seemingly endless plunge, and likes Motorcycle Holdings (ASX:MTO).

He says you wait for the bounce — never try to pick the bottom — and look for good looking individuals, not the stars of downtrodden industries.

“You’re trying to catch a falling safe. It’s much safer, rather than standing underneath it and trying to grab it, is to let it it hit the ground, let a bit of money fall out, then walk up and grab a bit of cash,” he says.

But the two he’s excited about in this video are Joint Strike Fighter parts maker Quickstep (ASX:QHL), which turned its first ever profit in the six months to December 31, and former tech darling Freelancer (ASX:FLN) which recently signed a major US partner.

He says Quickstep has some really interesting carbon fibre manufacturing tech for aerospace and new management, but has been listed for 14 years and in that time only once made money.

“You’ve got a company here that’s got a really specific technology with long term contracts and it’s only trading at 1x sales,” he says.

Freelancer on the other hand has only ever broken even. But a new US competitor, UpWork, that does exactly the same thing and is surging after a successful IPO, suggests the road Freelancer might be able to take.

“The difference being that Freelancer is trading on 5x or 6x sales and UpWork is trading on 12x and 13x sales, and also importantly UpWork is losing money and Freelancer is making money, or basically breaking even.

“And the third factor is that Freelancer has gone from an SME business into enterprise… we think it’s a real step change for the business.”