Color to the Numbers: Turnaround Stocks

Financial websites have given investors more tools than ever to screen the markets for stock ideas. But those screens only provide the raw numbers -- not the story behind them. What might look like the start of a trend could merely be a one-time blip. Let's enlist Motley Fool CAPS to color in the outlines these numbers create.

To find the cream of the crop of stocks poised for a turnaround -- those beaten down but still holding great value -- we'll screen for stocks with:

• Market cap of at least $1 billion.
• Share prices within 10% of their 52-week low.
• Free cash flow of at least $100 million.
• Total debt-to-equity ratio of less than 0.5.

Then we'll tap the collective intelligence of our 81,000-plus CAPS investors to see whether these companies present real opportunities -- or are priced low for a reason.

Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up today.

It's interesting to note that as companies increasingly give "soft" outlooks for 2008, investors see more reasons to sell, pushing share prices down near their lows. Little more than six months ago, this screen returned a few dozen stocks -- today, a legion of 137 companies met the criteria.

The intel on Intel
In contrast to IBM's impressive recent report, Intel underwhelmed Wall Street, missing profit forecasts and offering tepid guidance for the next quarter. Intel claimed that the U.S. economy wasn't behind any weakness in its numbers, and so far, the company has seen no effects of weakened consumer spending. Since three-quarters of its revenue comes from outside the U.S., this is not too surprising.

But the combination of lower-than-expected results and the admission that larger macroeconomic factors were not to blame may have hurt the stock even more. Many analysts and investors have already concluded that rough days are ahead for corporations, particularly those tied strongly to consumer spending habits. If Intel is already struggling before it feels the brunt of a looming recession, investors apparently fear its performance could get even worse.

That's a reasonable theory, and it seems to be good enough for many to sell Intel. But it also helps to create an opportunity for investors with long-term horizons. As an Intel shareholder in a dividend reinvestment plan, I look for chances like this to buy a few more shares. (Please note that The Motley Fool's disclosure policy prevents me from trading Intel and other stocks for 10 days before and after I write about them.) Since I'm looking at dollar-cost averaging as a way to build wealth in a 10- to 20-year time frame -- rather than 10 to 20 days -- I welcome the pessimism. A good majority of CAPS investors are bullish as well, with more than 90% of investors giving Intel's long-term prospects of beating the market a thumbs-up.

Silicon Frisbees
While memory maker SanDisk had been rising with the tide earlier in 2007, the company has fallen in line with Intel and many other chip stocks, seeing share prices cut in recent months. Flash memory is in high demand as the technology makes its way into more and more consumer products, but at least one analyst downgrade in October cited increased competition in the market.

Wall Street didn't let SanDisk out of the doghouse when it reported third-quarter earnings either, despite a 38% rise in revenue. Since then, macroeconomic pessimism has helped push shares of SanDisk down even farther, to its 52-week low. Like Intel, though, a strong contingent of CAPS investors like the cheaper shares; 1,247 of the 1,338 investors rating the company are bullish.

Let 81,000 investors be the judge
The collective wisdom of a huge pool of investors can quickly add color to a whitewashed page of numbers. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury and should perform their own research.

Want to see your favorite screen results run through the wringer in the CAPS community? It's free to tap the knowledge base, and even give your own opinion, in Motley Fool CAPS.