5 More Turnaround Stocks

Everyone loves a great comeback story. And in the stock market, few things are more enjoyable than owning a stock on the cusp of its own massive turnaround. After all, many fortunes are made by the investors who succeed in buying great businesses:

1. during times of maximum pessimism,

2. while they're being ignored and forgotten, or

3. when they're being beat down to bargain-basement levels.

Meet the turnaround tycoons
Those investors are able to do so because they see what other investors don't. More importantly, they're willing to bet big on the stocks they're certain will experience a reversal of fortune. The names behind this strategy include Buffett, Templeton, Price, and many more.

We probably can't help you with your contrarian spirit, but here are five possible turnaround ideas from our Motley Fool CAPS community. These are stocks that, despite being down more than 25% over the past year, have received a five-star rating from our pool of individual and professional investors.

So, without further ado:

Just a word of caution. These stocks have been beaten down for very specific reasons. So, don't view them as formal picks, but rather as suggestions you might want to investigate further. Due diligence is always required -- especially when you're playing with tricky turnarounds.

With that said, Lifetime Brands caught my eye as an interesting (possible) comeback story.

Once in a Lifetime opportunity?
One of my favorite ways to play the turnaround game is to wait patiently for a high-growth company to take a huge cut in price after disappointing Mr. Market with one of its earnings forecasts. This way, I have more confidence that the drop in price was caused by previous investors' rampant enthusiasm rather than a business with deteriorating fundamentals.

Lifetime Brands, for example, took a huge 20% cut last December after lowering its revenue forecast by about $30 million. The small-cap kitchenware company has since recovered from the drop, but the shares are still well off from the 52-week highs it set last May. But, although the one-year stock chart looks ugly, Lifetime's portfolio of businesses is anything but.

Lifetime owns some of the most well-known brands in the housewares industry. Through several acquisitions, Lifetime has built a portfolio of names that include KitchenAid, Cuisinart, Hoffritz, and Farberware. Not a day goes by that I don't chop, seal, serve, or scoop with at least one of their items. By leveraging these brands and redesigning thousands of products, Lifetime has been able to grow sales at an average rate of 27% over the past five years.

If you prefer growth of the organic sort (as most Fools should), Lifetime was able grow its wholesale operation 14% in 2006 without the aid of acquisitions, while management expects growth in 2007 to be fueled primarily by new products and by widening its existing brands. CEO Jeffrey Siegel believes 2007 earnings per share will clock in between $1.40-$1.70, while revenue is expected to be in the $540 million to $575 million range.

And that, dear Fools, leads us back to the issue of price. At current levels, Lifetime's stock is trading at about 11 times forward earnings and half of 2007's expected revenue. Additionally, Lifetime has a PEG of 0.60, which takes into account longer-term growth. Price multiples are far from perfect, but they're often good "eyeball" screens for finding compelling bargains.

On the surface, anyway, Lifetime's stock looks cheap and seems like an attractive bet to bounce back -- especially for a company with so many well-recognized names. Here are three CAPS All-Stars who also find Lifetime's brand power provoking:

• dymaxian: Cuisinart and KitchenAid. These two names are known by almost everyone who cooks for themselves, and are coveted by everyone who watches The Food Network. They get free advertising on Iron Chef and Emeril. If you spend any significant time in the kitchen, you either have or want this name on your countertop. Why not put them in your portfolio? Especially as undervalued as they currently are?
• austinhippie: LCUT products like KitchenAide [sic] and Pfaltzcraft [sic] will continue to be beloved household items for years to come and with our population getting larger, the company has room to grow. Twenty years from now we will look at this company and see a market giant.
• TheStillMan: Just following the lead of Buffett. Great brand names create a moat.

Now, it's your turn(around)
So what do you think, Fool? Will Lifetime Brands finally start to show off its housewares? Or will it take a lifetime before Mr. Market takes it off the chopping block?

The great thing about turnarounds is that they offer an exceptional way to generate excess returns over the market. The catch, of course, is that they require an excess amount of time and effort to figure out. But, with the help of over 24,000 fellow Fools in our community, you'll have a head start on spotting some of the more probable plays. So, click here to get started, absolutely free.

More tasty, terrific, and (hopefully) triumphant turnaround treats await:

• Cold Stocks You're Selling Now
• Get Ready for the Bounce
• Get Ready for the Fall

Foolish contributor Brian Pacampara holds no position in any of the companies mentioned. The Fool's disclosure policy is always headed in the right direction.