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:

  1. during times of maximum pessimism,
  2. while they're being ignored and forgotten, or
  3. when they're being beaten 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:


One-Year Return (as of 03/26 close)

CAPS Bulls

CAPS Bears






Property and Casualty Insurance





Electrical Equipment





Data Storage

Encore Acquisition (NYSE:EAC)




Oil & Gas

Raven Industries (NASDAQ:RAVN)




Printed Circuit Boards

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, Raven Industries caught my eye as an interesting (possible) comeback story.

Quoth the Raven, "Nevermore"?
We Fools are pretty weary of companies that dole out golden parachutes, but Raven Industries -- a manufacturer of everything from military parachutes to fertilizers -- could be the one exception. Since 1956, Raven has grown from a simple producer of research balloons into a highly diverse industrial company of four profitable units: flow controls, engineered films, electronic systems, and Aerostar.

Ronald Moquist, who owns about 5% of the company's outstanding shares, has been president and CEO since 2000. In that time, earnings per share have grown at an average of about 30% per year, margins have increased in each of those years, and returns on equity have consistently exceeded 20% (with the use of virtually no debt). So it's pretty clear why our CAPS Fools love Raven.

What isn't so obvious is why we find it on our list of 52-week laggards and, more importantly, whether a turnaround is imminent. In this Fool's opinion, Raven's steady descent is simply a matter of getting back to more reasonable altitudes -- I mean, uh, valuation levels. Although margins and returns on capital were once again impressive, revenues and net income grew only at a modest rate in 2006.

The current PEG of slightly above one and EV/EBITDA of 12 seem to be more in line with Moquist's expectations of long-term growth in the low to mid-teens. However, with a cash balance of about $10 million, no debt, and a 21-year streak of increasing dividends, Raven might be a safe enough bet to soar back soon.

These three CAPS players give us a closer look at our feathered friend:

  • The Fool's partner in CAPS, NetscribesTech, talks about the attractive, diverse nature of Raven's revenue streams: "Since its inception in 1956, the company has grown into a diversified unit with applications in the field of agriculture, construction, and industry apart from aerospace/military.... This diversified feature, along with a sound industrial climate, ensures a good show by the company stock."
  • sunil6865 uses Raven's long-term track record as an indication of good things to come: "This 50-year-old company has the history to change with the times and capitalize on specific industry niches. It is amazing that they have such a long history of predictable growth and high profit margins."
  • And CAPS All-Star austinhippie chimes in with a bold prediction about Raven's returns: "The company is in a specialized market and has the potential for growth.... After being beaten up over the last year, if the company can post positive earnings growth, the stock will definitely bounce back."

Now it's your turn(around)
So what do you think, Fool? Will Raven Industries take its broken wings and learn to fly? Or is it just a blackbird singing in the dead of night?

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 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:

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.