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 20% or more 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 Aug. 1 close)


Newport Corporation (NASDAQ:NEWP)


Scientific and technical Instruments

Umpqua Holdings (NASDAQ:UMPQ)


Regional banks

Sterling Construction (NASDAQ:STRL)


Heavy construction

AmCOMP Incorporated (NASDAQ:AMCP)


Property and casualty Insurance

Newmont Mining (NYSE:NEM)



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.    

Laser-sharp drop
Lasers, of many different shapes and sizes, have disappointed me recently. Two months ago, I found out that I was a 25-year-old glaucoma candidate and, therefore, ineligible for laser eye surgery. Two weeks ago, I highlighted laser parts maker II-VI as a top insider-owned stock, and it has drifted down 10% since (though the Motley Fool Hidden Gems pick is still up a healthy 44% since it was formally recommended one year ago). Finally, laser specialist Rofin Sinar Technologies (NASDAQ:RSTI), one of my biggest real-life holdings, is also down big over the last couple of weeks (once again, the stock is still up a whopping 144% since it was selected by Hidden Gems).

So, at the short-term risk of getting burned by yet another laser, I've decided to highlight a CAPS favorite and one of Rofin's strongest competitors: Newport Corporation. 

Newport shareholders have had their own share of laser loss recently. After disappointing Wall Street with a 14% decrease in 2Q net income, shares of the ultra-fast laser producer have plummeted 15% in just a few short weeks. Ongoing slowness in the semiconductor market was the primary reason for the abysmal results, and it is the reason CEO Robert Deuster expects sales to be light in Q3, as well. That gloomy forecast doesn't bode well for the stock over the short term, but where the market sees short-term uncertainty, Fools very often see long-term opportunity. According to CAPS, Newport Corporation fits the description pretty well.

Despite the slowdown in microelectronics, Newport's sales to the scientific research and aerospace markets -- accounting for approximately 38% of total revenue -- have been relatively healthy, up 10% for the quarter. Additionally, sales to the life and health sciences market -- representing about 16% of net sales -- were $18.1 million, and new orders reached record levels at $22.1 million. In other words, Newport isn't entirely leveraged to the semiconductor space, and therefore, Mr. Market's extreme haircut may not have been warranted. After all, this is still a business that has grown revenue and EBITDA at a compounded rate of 20% and 58%, respectively, over the last five years.

Of course, you'll have to dig deeper and figure out for yourself whether or not Newport is truly an authentic turnaround candidate. But, when you couple the board's recent approval to repurchase an additional 8% of the company's shares with an EV/EBITDA of 8.1, Newport looks pretty cheap -- well, on the surface, at least. Throw in the possibility that the semiconductor might be approaching a cyclical trough, and you've got an interesting risk/reward scenario to investigate.

But don't just take my word for it. Here's a pair of CAPS All-Stars who've also chimed in on Newport.

With a current stock price of $13, this pitch from DatabaseBob is that much more compelling:

This company is another example of a small-cap growth stock over-loved during the NASDAQ bubble years and under-loved subsequently. ... I think that a bottom has been reached in the $16 range after the stock fell from over $22 last November and the stock appears to be turning up. I could be wrong in my timing, but I don't think I'm wrong in saying that Newport is currently undervalued and that prices under $17 provide a wide "margin of safety".

And NetscribeTech focuses on Newport's geographic diversification as the big turnaround catalyst:

... [A]round 46% of revenue is derived from international markets, the majority of which are from countries like China, Japan and Taiwan. The demand from these countries is going to rise as a result of the upsurge in advanced semiconductor usage. These factors will eventually reflect in its stock price, resulting in an upward movement.

Now it's your turn(around)
So what do you think, Fool? Will Mr. Market finally start to give a break to this laser maker? Or will Newport investors just keep getting laser-burned?  

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.    

II-VI and Rofin Sinar are Motley Fool Hidden Gems picks. You can find out why with a 30-day free trial of our small-cap newsletter.

Foolish contributor Brian Pacampara owns shares of Rofin Sinar Technologies, but holds no position in any of the other companies mentioned. The Fool's disclosure policy is always headed in the right direction.