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 four- or five-star rating from our pool of individual and professional investors.

So, without further ado:


One-Year Return (as of July 11 close)


Vimicro International (NASDAQ:VIMC)



Napco Security Systems (NASDAQ:NSSC)


Security and protection services

Kimball Int'l (NASDAQ:KBALB)


Business equipment

Center Financial (NASDAQ:CLFC)


Savings and loans

Adams Resources & Energy (AMEX:AE)


Oil and gas

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, Vimicro International caught my eye as an interesting (possible) comeback story.

Cheap Chinese chips
It's no secret that Chinese stocks are some of the most expensive in the world. But, as my fellow Fool Tim Hanson suggested (after returning from his investment tour of China), there are still pockets of value available within the smaller-cap Chinese stocks. Well, Vimicro International, a fabless semiconductor company capitalized at just $231 million, could be one of those small Chinese exceptions. In fact, according to our CAPS community, Vimicro is a prime candidate for a turnaround. I've got to agree.

After habitually disappointing Wall Street with lackluster revenue growth and bottom-line declines in the last few reported quarters, Vimicro has developed one ugly chart. If stale operating results weren't frustrating enough, Vimicro recently announced that it was changing auditors and would have to delay the release of its fourth-quarter results. Those results come out at market close today, along with first-quarter 2007 figures, but being the poor prognosticator I am, I won't even try to make a call on what Vimicro has in store for investors.

So, then, why -- after a string of disappointing results and a questionable change in auditors, and when I have no clue as to what Vimicro will announce later on today -- do I like the stock right now? Well, for the same two reasons that our CAPS community likes it: potential and price.

Despite its small size, Vimicro is one of China's leading semiconductor companies, primarily designing chips for PCs and mobile phones. It owns a more than 60% share in the global PC camera chip market, while the cell phone multimedia processing segment naturally represents a huge growth opportunity for shareholders -- you know, when you couple the increasing popularity of handset gadgetry with China's massive population.

But of course, for frugal Fools who enjoy a "huge growth opportunity" as long as they don't have to pay for it, Vimicro has close to $3 per share in cash and investments on its balance sheet, with zero debt. That works out to an EV/EBITDA multiple of 7.2, while mobile processing giant NVIDIA (NASDAQ:NVDA) trades at 19.6 and Analog Devices (NYSE:ADI) chimes in at 13.5. So, I'd have to venture to say that many of the concerns regarding Vimicro are already baked heavily into the price -- so much so that any positive news out of Vimicro (later today or down the road) should mean positive movement for the stock as well. Let's stay tuned.

Here are three CAPS players who also like Vimicro's risk/reward profile:   

  • PSosa21 lucidly sums it up: "Much of the decline is due to the delay in filing their earnings. I guess without the earnings report, it can be considered speculation, but considering their position in their industry, they are poised for some serious growth. Tremendous value at this time."
  • CAPS All-Star weiwentg agrees: "... Its CEO has a lot of experience, and has great growth prospects ahead. VIMC has had a number of short-term setbacks, like changing auditors, but they are generally short-term and there's no evidence of any wrongdoing."
  • Finally, CAPS All-Star RandomGuy123 takes a long-term view: "VIMC is a solid player and is well positioned to begin making headway into the lucrative cell phone chip segment, and with China's growth expected to continue for the foreseeable future, VIMC looks like a pretty good play. Buy and hold for 2-3 years, and you probably will not be disappointed."

Now it's your turn(around)
So what do you think, Fool? Will Vimicro's stock start conducting a fabless -- err, fabulous -- comeback? Or will shareholders just keep on processing 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 more than 60,000 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.    

NVIDIA is a Motley Fool Stock Advisor pick. A free 30-day trial to the market-beating service is yours -- just follow this link to get started.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.