Revenues in Citigroup's Treasuries business have increased nicely.

IT takes nerves of steel, an iron stomach and a ton of patience to invest in turnaround stocks, a dicey corner of the market populated by firms that have a viable strategy to improve their business. Most investors shun these stocks, so you’re moving against the crowd. And these corporate makeovers can take years; in the meantime, the shares languish. So why bother? Because if the company succeeds in its turnaround, the payoff can be big.

In the late 1990s, for instance, Apple teetered toward bankruptcy. But founder Steve Jobs, who had left Apple in 1985, came back as CEO. In short order, he partnered with Microsoft (blasphemy to loyal Apple fans), launched the colorful iMac and iPod, and opened Apple’s first retail store. Sales soared, as did earnings. Between Jobs’s first day back in 1997 and the start of 2002, Apple investors had doubled their money, more than tripling the return of the S&P 500 index.

Of course, many turnarounds fail, too. Over the next few pages, we’ll highlight the traits often shared by successful turnarounds and provide details about a few troubled companies worth considering today. We’ll also discuss best practices if you plan on investing in one, and we’ll point to companies early in the transition process that we’re keeping an eye on.

Don’t confuse a turnaround with an out-of-favor cyclical stock that just needs an economic recovery to rebound. A true turnaround is about change: “The key is that the company’s future path is very different from what it is today,” says Bill Nygren, manager of the Oakmark fund.