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 20% or greater over the past year, have received a four- or five-star rating (out of five) from our pool of individual and professional investors.

So, without further ado:


One-Year Return (as of Aug. 22 close)


Asset Acceptance Capital (NASDAQ:AACC)


Credit services

Rudolph Technologies (NASDAQ:RTEC)


Scientific and technical instruments

AngloGold Ashanti (NYSE:AU)



Eagle Test Systems (NASDAQ:EGLT)


Semiconductor equipment



Wireless communications

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.    

Stress test
Before I wrote this article last year about Motley Fool Hidden Gems selection FormFactor (NASDAQ:FORM), I had no idea that there was a whole industry supporting the testing of microchips. Obviously, I'm still no authority on this sector, but when Eagle Test Systems -- a company that also provides semiconductor testing products -- popped up on this week's "turnaround screen," I thought I'd be able to draw a few parallels.

As it turns out, Eagle and FormFactor don't exactly compete with one another, as each company tests a different type of chip: Eagle primarily serves the analog and RF markets, while FormFactor caters to the DRAM space. However, one thing's for certain: Our CAPS community loves them both.

Despite plummeting 20% over the last three months, Eagle recently received its first five-star rating. I can't tell you whether that's a sure sign that a turnaround is underway, but let's just say we've seen something like this before.

FormFactor was also a beaten-down semiconductor (and all things related) stock. After reaching a price of $47.78 late last March, FORM fell 23% over the next four months. The stock briefly lost its five-star status during this time, but once that rating was regained, it bounced back 14% to where it stands today. Again, I'm not saying CAPS has superhuman predictive abilities -- I'm just saying that it might!

CAPS fun facts aside, Fools really know it's the valuation that counts most. Here, the news is also relatively positive for EGLT. The stock trades at an EV/EBITDA of 7.1, while direct competitors LTX (NASDAQ:LTXX) and Teradyne (NYSE:TER) trade at 8.1 and 13.2, respectively. Also worth noting is EGLT's rock-solid balance sheet -- highlighted by $112.7 million in cash and investments and virtually no debt.   

And if that's still not enough of a comeback case for you, know that all four Wall Street firms covering EGLT on CAPS -- A.G. Edwards, Lehman Brothers, Bank of America Securities, and Deutsche Securities -- also like the stock to outperform.

So either way you look at it, Eagle Test Systems is one of the more intriguing turnaround candidates you'll come across. 

Now, let's turn to our Foolish community for some comments ...

  • mflongterm expands on Eagle's strengths: "The value numbers look nice on this company, and it's not selling a 'flashy' product. Balance sheet is strong with healthy amounts of cash on hand, and very low debt levels. Sales took a dip in 2005 but exploded in 2006. EGLT sells its products to customers all over the world (U.S., China, and Malaysia)."
  • CAPS All-Star ThePessimist actually waxes optimistic: "EGLT has historically focused on testers for power management chips, but is expanding into FETs, ADCs, and RF chips. This should help them overcome the customer concentration, and also improve market share to overcome an industry decline. Also note they're rolling in cash: about $4.91/share, or 40% of their market cap."
  • Finally, inl43 sums it all up: "Solid financials, low d/e, strong current ratio, trading relative[ly] cheap on an EV/EBITDA basis. Lots of cash on hand and free cash flow generation to increase book value over time."

Now it's your turn(around)
So what do you think, Fool? Will Eagle finally soar back into the sky? Or will the stock continue to be pounded into the ground?

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.    

Asset Acceptance Capital is a Motley Fool Hidden Gems Pay Dirt pick, and FormFactor is a Hidden Gems selection. You can check out Hidden Gems with a 30-day free trial.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy is always headed in the right direction.