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 15% 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:
(out of 5)
|Chesapeake Energy (NYSE: CHK )
||Independent oil and gas
|MetroPCS Communications (NYSE: PCS )
|InterDigital (Nasdaq: IDCC )
|Blackstone Group (NYSE: BX )
|Stillwater Mining (NYSE: SWC )
||Industrial metals and minerals
Source: Motley Fool CAPS.
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 more than 24% over the past month, embattled natural gas producer Chesapeake Energy tops this week's list of losers. Persistently low natural gas prices and the very recent controversy surrounding CEO Aubrey McClendon's financing transactions have the stock on a nasty downward spiral, but many Fools in our community remain confident in the company's long-term prospects.
CAPS All-Star rojostyle explains:
Did this company beat estimates 10 out of the last 11 quarters? Yes. Does the future look bright still for this company? Absolutely. Natural gas prices will go up in the next 3 years. The company will do fine. Just depends on how much stockholders want to punish this company for being mislead.
Last August, wireless provider MetroPCS suffered a staggering single-day stock plunge of 37% on weaker-than-expected growth, and the shares have been on a steady slide ever since. But for patient investors willing to stomach more short-term turbulence, management's 4G LTE buildout might eventually serve as a potent antidote to the slow subscriber additions.
CAPS member tichtalk elaborates: "Based on growth opportunities and the possibility of being an acquisition target, [MetroPCS] looks like a solid buy. They project to have strong cash flows moving forward and due to strategic capital expenditures could see tremendous earnings growth bringing 4G phones to the low-cost market in the next few years."
It wasn't too long ago that InterDigital shares were flying high on takeover speculation, but a lack of buyer interest during the company's strategic review, coupled with shrinking licensing revenues of late, has the stock off a whopping 67% from its 52-week high. Many Fools think the beating is now completely overdone, however, and doesn't consider InterDigital's still-very-valuable patent portfolio.
CAPS member jackycheng sums it up: "Though the business is slowing down and the company is lacking of management skill to monitor the recurring incomes, it would not be a bad choice to buy it now after the great drop as the [patent portfolio is likely] worth more than the current market value."
Bet on Black
Despite the largely positive results in global capital markets recently, asset management giant Blackstone Group saw its top and bottom line drop 17% and 24%, respectively, in the most recent quarter. But while weak performance from real estate and private equity investments may continue to pressure management fees in the near term, the company's steadily growing assets under management -- now at a record $190 billion -- remains a positive long-term sign.
CAPS All-Star TMFDeej expands on the opportunity:
It's assets under management have doubled since its IPO, yet its stock price has imploded. Its GAAP financials hide the business's profitability. With a solid franchise, huge dividend ... [Blackstone] is a good bet to outperform the S&P going forward.
Playing with palladium
Our last turnaround candidate this week is small-cap miner Stillwater Mining, whose shares continue to pull back alongside palladium prices. Of course, the bounce-back argument is identical to that of previous "Top Turnaround" pick North American Palladium: The scarcity of palladium, combined with the metal's heavy industrial uses, makes Stillwater a solid stock for the long haul.
CAPS member Bilko66 chimes in: "Oversold recently. ... Significantly higher inflation looming. Still high use in autos for their metals. Auto market looks promising."
Now, it's your turn(around)
Turnarounds offer an exceptional way to wallop the market's overall returns. The catch, of course, is that they require a little more effort to figure them out.
But if you're crunched for time, we've compiled a special free report called "The Stocks Only the Smartest Investors Are Buying," which uncovers several other bargains that the value-master himself, Warren Buffett, things highly of. The report is 100% free, but it won't be around forever, so click here to access it now.