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, 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 beat 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 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 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, Benchmark Electronic caught my eye as an interesting (possible) comeback story.   

Bench pressed
Despite Benchmark's horrid stock performance over the last 52 weeks, our CAPS community managed to get the company on the top 10 list for the Best Tech Stocks Right Now. With all the momentum players in the market, you'd think there'd be at least a little pessimism for Benchmark's stock. But without a single bearish CAPS player in sight, Foolish sentiment tells us Benchmark won't be a loser forever. Let's take a closer look, shall we?   

Benchmark competes in the intensely competitive world of electronics manufacturing services (EMS). In addition to the pricing pressures caused by the likes of Celestica (NYSE:CLS), Jabil Circuits (NYSE:JBL), and Solectron, an EMS slowdown has been a very real concern for Benchmark investors over the past year.

In fact, just this morning, Benchmark reported a 7.5% decrease in net income thanks to weak demand in its end markets. The shares are down more than 5% as I write this, but like our CAPS community, I think there are still plenty of reasons to stay focused on this Benchmark.

For one, Benchmark has a squeaky-clean balance sheet with more than $200 million in cash and no debt. In relation to the current price of Benchmark's shares, that works out to an EV/EBITDA of about 8.5. Coupled with a PEG around 0.75, the valuation hardly looks expensive. Of course, these multiples won't look so cheap if earnings continue to decline, but with the EMS space steadily moving toward specialized markets, Benchmark is probably the best-positioned manufacturer to benefit from longer-term trends.

Benchmark has traditionally earned some of the industry's highest margins by diversifying into nontraditional, premium markets (medical devices, industrial control, testing products, etc.). With its recent acquisition of Pemstar, Benchmark now has exposure to the outsourced engineering space, as well. Forecasting earnings is not one of my Foolish fortes, but with a rock-solid financial position and a fairly diverse revenue base, Benchmark looks like an attractive turnaround bet at the current levels.

Of course, with more than half of our Benchmark bulls being CAPS All-Stars -- and five of Wall Street's Best calling outperform, too -- I'm not exactly going out on a limb here.

Here are two CAPS players who are also enjoying their time on the bench:  

• CAPS All-Star dhadcock likes, well, just about everything about Benchmark and says, "OK, another 5-star stock with NO Bulls. Now at about $20 vs $30 52week high. P/E < 12 (at its 5-year low), no debt, +200M cash, price/cash flow is one quarter that of its industry. Royce (Royce & Associates) and Dimensional (Dimensional Fund Advisors) own. So will I."
• sdholler, meanwhile, chimes in with a plainer pitch: "Low P/E with no debt and plenty of cash. Tough industry but they seem to be the company buying out the non-performers."

Now it's your turn(around)
So what do you think, Fool? Will Benchmark finally start to beat the market benchmark? Or will investors just keep riding the bench to more losses?    

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 nearly 28,000 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 Foolish changes of direction:

• Get Ready for the Fall
• Get Ready for the Bounce
• 5 Stocks Under Attack

Think you can pitch your favorite stock -- or ditch your least favorite one -- in 27 seconds or less? That's just what we're doing over at Motley Fool CAPS! Check out our new 27-second stock videos.

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.