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, the investors who succeed in buying great businesses during times of maximum pessimism, while those businesses are being ignored and forgotten, or when they're being beaten down to bargain-basement levels, often amass sizable fortunes.

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 that 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 15% over the past year, have received a four or 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 these as formal recommendations but rather as suggestions you might want to investigate further. Due diligence is always crucial -- especially when you're playing with tricky turnarounds.    

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

Northwest expedition
I'm a firm believer that you achieve the best returns in the market when you buy quality companies at a reasonable price. With returns on equity and invested capital consistently above 20%, Expeditors International of Washington definitely qualifies as a quality company. And although a huge stock decline, in itself, can't tell us whether the current price is attractive, it should at least prompt us Fools to expediently investigate.

I've actually followed Expeditors for quite some time, but I had never read our community's opinion until now. I wasn't surprised to see that my fellow Fools were being drawn to Expeditors for the very same reasons I was: its capital-light business model and straight-shooting management team -- two things every Fool craves.  

Although Expeditors' main goal in life is to get freight delivered efficiently, it doesn't do any of the heavy lifting. Instead, Expeditors acts as a broker that supports the movement and strategic positioning of goods. Therefore, it owns no capital-intensive assets such as aircrafts or ships. As Foolish colleague Anders Bylund pointed out, this translates into operational efficiency that's the envy of the industry. In addition, when you consider Chairman and CEO Peter Rose's 20-year track record of value creation and candid communication (especially in its famous 8-K filings, where shareholder questions are answered in writing), Expeditors is one of the more easily trusted companies you'll find.

In Rose's words, "Our goal has always been to give insight into how this real business is running, not produce sterile and sophisticated boilerplate."  

Of course, Expeditors wouldn't be classified as a "turnaround" candidate if the entire picture were peachy. Several earnings misses over the past few quarters, caused by a weak air-freight environment and rising costs throughout the cargo industry, have the stock trading at a 22% discount to its 52-week high. Even with the drop, Expeditors currently trades at a lofty 39 times earnings and price-to-earnings-to-growth (PEG) ratio of 1.71.

I think that's still too expensive for us to count on a rebound anytime soon. But then again, I could be wrong. After all, Expeditors' debt-free balance sheet, decade-long streak of paying growing dividends, and high-character management team might actually serve as a big enough margin of safety. To help you decide, here's a pair of CAPS All-Stars with expedited arguments:  

• KatWoman50 loves Expeditors' flexibility and says, "Consolidates transportation containers and brokers customs. Lots of cash and no debt. Doesn't own equipment, so profits either way the economy goes. People will still ship goods and they can benefit from leasing space at a discount when the big guys are pinched."

• Finally, pennysplants wants to make things perfectly clear: "This is NOT a transportation play. They save their customers money thru efficiency. They make money on smarts and business savvy. They treat their people well and run a tight ship. Excellent balance sheet. While share price may go up-and-down, this is a strong company that will provide above average returns to investors for many years to come (IMHO)."

Now, it's your turn(around)
So what do you think, Fool? Will Expeditors' stock finally start delivering the goods? Or will Mr. Market continue to be frightened by freight?     

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 50,000 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.    

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