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.
- When they're being beat down to bargain-basement levels.
Meet the turnaround tycoons
Notable investors who've followed this strategy include Warren Buffett, John Templeton, Seth Klarman, and many more.
We probably can't help you with your contrarian spirit, but we can offer you five possible turnaround ideas from our Motley Fool CAPS community. Despite being down 5% or more over the past month, these stocks have received a four- or five-star rating (out of five) from our pool of individual and professional investors. Our candidates today:
Current CAPS Rating (out of 5)
|Alliance Resource Partners (Nasdaq: ARLP )||(21%)||Industrial metals and minerals||****|
|Banco Santander (NYSE: STD )||(11%)||Diversified banks||****|
|AmeriGas Partners (NYSE: APU )||(12%)||Gas utilities||****|
|BGC Partners (Nasdaq: BGCP )||(7%)||Investment brokerage||*****|
|C&J Energy Services (NYSE: CJES )||(5%)||Oil and gas equipment and services||*****|
These stocks have been slammed for very specific reasons, so don't view them as formal picks -- just ideas you might want to investigate further. With that said, let's see exactly why some of our CAPS members believe they're good bets to bounce back.
With its shares down 21% over the past month, Alliance Resource -- which produces and markets coal to utilities and industrial users -- tops this week's list. The stock has been hammered by depressed coal prices and, recently, EPA proposals to limit greenhouse gases from new power plants, but our community believes that the company's consistently growing dividend is just too tempting to pass up.
Coal is plentiful, relatively cheap, and modern techniques for generating electricity from it are very efficient. I know the Obama Administration is down on coal, but the reality is that it's one of our nation's best natural resources, and the rest of the world is starving for it. ... Also, I'm always on the lookout for great dividends ... and they've been growing their dividend quarterly, not annualy.
Spain's credit troubles have been grabbing plenty of headlines of late, so it's no surprise that shares of Madrid-based bank Banco Santander have been sliding. Given the company's geographic diversification, sound credit standards, and Latin American growth prospects, however, many Fools think the upside is well worth the risk.
Right now there is a lot of turmoil taking place in Spain, with the Unions protesting the austerity programs the newly elected conservative national govt. has put in place, so investors are skittish.
I still like them for the long run and expect them to be at least a 2 bagger from this low point.
Time to gas up
In mid-March, shares of propane gas distributor AmeriGas Partners fell off a cliff after the company issued disappointing quarterly guidance, as well as announcing that it would sell 7 million common units in a secondary offering. The good news is that insiders have been buying into the stock's weakness in 2012, so it's no surprise that CAPS members seem to be following their lead.
Propane distributor with [price-to-earnings] of 22.3 , yield of 7.6% and low beta in case volatility in market becomes a big factor ... PLUS just coming off a big DIP in [price].
While the financial sector has held up nicely in recent weeks, small-cap specialty brokers might be a hidden source of value within the space. Shares of financial intermediary BGC Partners, for example, have been under pressure on analyst downgrades and concerns over its recent takeover of bankrupt Grubb & Ellis, but a juicy dividend yield, strong insider ownership, and cash-rich balance sheet make it an attractive long-term pick.
The almost 11% inside ownership holds well for the dividend not being cut, but it has a payout ratio of over 200%. What I really liked about this one was the $3 in cash per share. Even if the [dividend] takes a cut which I think is possible; I do not see the stock falling too much farther.
Another frackin' bargain
Our last turnaround candidate this week is hydraulic fracturing specialist C&J Energy Services, whose shares continue to be pressured by the big drop in natural gas drilling activity caused by persistently low natural gas prices. But with such a low valuation, the risks may be baked well into C&J's stock price.
Hydraulic fracturing is a transformative technology that is leading an energy revolution by allowing access to both oil and natural gas resources that were previously inaccessible (primarily natural gas in the US). While the excessive natural gas supply is laying the hurt on natural gas producers, the equipment makers/drillers are somewhat insulated from this. ... I like the great metrics on this company and how well it's run, as well as the rock-bottom valuation.
Now, it's your turn(around)
Turnarounds offer an exceptional way to wallop the market's overall returns. The catch, of course, is that you'll need more time and effort to figure them out.
However, the more than 180,000 members in our CAPS community can help you get a head start on spotting some of the more probable plays. Click here to get started, absolutely free. More tasty, terrific, and (we hope) triumphant turnaround treats await.