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:
- during times of maximum pessimism,
- while they're being ignored and forgotten, or
- 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 20% over the past year, have received a five-star rating from our pool of individual and professional investors.
So, without further ado:
|
Company
|
One-Year Return (as of April 9 close)
|
CAPS Bulls
|
CAPS Bears
|
Industry
|
|
Joy Global (:JOYG)
|
(32.06%)
|
355
|
9
|
Machinery
|
|
Basic Energy Services (:BAS)
|
(22.53%)
|
80
|
3
|
|
|
Radware (NASDAQ:RDWR)
|
(21.93%)
|
42
|
2
|
Information technology
|
|
BJ Services (NYSE:BJS)
|
(20.91%)
|
275
|
2
|
Oil and gas
|
|
Saia (NASDAQ:SAIA)
|
(20.17%)
|
17
|
2
|
Trucking
|
Data provided by Motley Fool CAPS.
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, Joy Global caught my eye as an interesting (possible) comeback story.
Joyful, joyful, CAPS adores thee
You'd be hard-pressed to find a company that has brought more joy to its investors than Joy Global. As my Foolish colleague Dave Mock points out, the Milwaukee-based manufacturer of mining equipment has yielded the best returns in the stock market over the past five years -- returning nearly 44% annual compound growth. Unfortunately, because of Joy's severely cyclical nature, the stock has fizzled in the last year thanks to weakening commodity prices.
Joy is especially levered to coal, which represents almost 70% of its end market. With the recent softness in North American coal prices, investors are now experiencing the not-so-joyful effects of being highly exposed to a single commodity. Nevertheless, our CAPS community is adamant that Joy's stock is set for a successful turnaround. Although taking a stand against the CAPS herd can be beneficial at times, it would be tough to disagree on this one.
Even in the face of a challenging U.S. coal market, Joy Global managed to grow revenues 25% in FY 2006, and expects double-digit growth for 2007. To this Fool, that's a clear sign that the company is, at the very least, reasonably diversified enough to withstand a fair degree of resource volatility in the short term.
As it stands today, prices for copper, iron ore, and international coal are still well above the company's production costs. As Joy looks to further diversify into markets such as Canada, China, and Russia, the shares seem like a nice way to play the positive long-term (and global) outlook for commodities. Also, with a modest dividend yield of 1.30% and management continuing stock buybacks under a $1 billion authorization, Joy's price should make a lot of current buyers pretty happy.
These CAPS players give us more reasons to jump for joy:
- The Fool's own TMFBent says, "I think this one has come back enough, and given the strong demand for so much stuff that's being dragged out of the ground, I believe the current up cycle for Joy will last quite a while longer."
-
mkeszler likes cleansed coal in the long run: "Well run, lots of cash on hand, global growth will continue to drive the demand for their products. Cleaner coal technologies are making coal a more acceptable choice from the environmental point of view. ... A boring multibagger."
- Meanwhile, ddberg takes a practical approach to mining: "As long as the prices of precious metals don't completely collapse, mining companies are going to keep digging and will need the equipment to do so. The opportunities in China represent additional revenue opportunities that make this a no-brainer (both in CAPS and in my portfolio)."
Now, its your turn(around)
So what do you think, Fool? Will Joy investors feel the joys of compounding ever again? Or will further losses only cause more despair?
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 more than 25,000 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.
For more CAPS-related fun:
Make seven picks on CAPS by April 24, and we'll send you a free copy of The Motley Fool Five Star Report. Inside you'll discover how to use CAPS as a research tool, and you will receive a recommended five-star CAPS pick poised to beat the market for the next decade or more -- one that you can easily translate into profits for your real-world portfolio. But please hurry. This special report will be mailed out on Tuesday, April 24, and it's only being sent to CAPS members who have their seven picks in. Click here to get started now!
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.
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