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:


One-Year Return (as of July 18 close)


Vaalco Energy (NYSE:EGY)


Independent oil and gas

Angiotech Pharmaceuticals (NASDAQ:ANPI)


Drug manufacturers

United Retail Group (NASDAQ:URGI)


Apparel stores

Universal Truckload Services (NASDAQ:UACL)



Precision Drilling Trust (NYSE:PDS)


Oil and gas services

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, Precision Drilling Trust caught my eye as an interesting (possible) comeback story.   

Trust in a turnaround
For me, the toughest turnaround situation to bet on is when a company suffers from a severe downturn in demand, rampant uncontrollable costs, or any other problems that call into question its actual survival. And then there's Motley Fool Global Gains selection Precision Drilling Trust: a turnaround candidate that, according to our CAPS community, has been pummeled for reasons which have very little to do with the strength of its business. Let's drill down and take a closer look, shall we?   

Last October, the Canadian government played a little Halloween trick on all of the nation's income trust unitholders when it introduced a plan designed to tax income trusts at the corporate level. The "Tax Fairness Plan," which essentially meant double taxation for Canadian income investors, sent most trusts (along with the entire Toronto Stock Exchange) spiraling. Many have already recovered, but there are those, like Precision Drilling -- whose shares plummeted 14% on the day of the announcement -- that have yet to bounce back. Though it's taken longer than expected, many Fools continue to believe a PDS turnaround is inevitable.

If you haven't heard of PDS before, it is Canada's largest natural gas contract driller, owning about 30% of all the rigs in the country. It was singled out by Global Gains because of its dominant position in the Western Canadian Sedimentary Basin (you know, where all the oil's at), pristine balance sheet, and healthy dividend yield. Additionally, the team was enamored with PDS's healthy cash flow generation, its experienced management, and the fact that it was trading at a steep discount to intrinsic value.

So, why am I rattling off this laundry list of bullish arguments? Simple. Because many, if not all, of them still stand today. In our community's opinion, the "Tax Fairness Plan" combined with an overall industry slowdown is acting like a short-term storm against PDS's stock price. However, for Fools with a long-term outlook, healthy forecasted demand for natural gas, coupled with PDS' dominant position in Canada, gives unitholders plenty of reasons to expect a turnaround -- or, at least, be cautiously optimistic about one.

Here's a pair of CAPS players who know the drill.

CAPS All-Star rmenschel isn't buying what the bears are selling:

I've been reading various doom and gloom predictions for the Canadian oil trusts, especially the big ones like PDS, and I just don't buy it. PDS has top margins and returns, very low debt, good EPS growth, and gives out a very good dividend. They have a broad customer base, solid resources, and solid business plan.

And greenbacks2007 pitches a simple scenario analysis:

I don't see how this stock can go lower. I think it's a good stock to be in if you're worried about a market correction because of the yield. The P/E indicates this stock is a pretty safe bet from losing ground, but could make a fairly big turnaround if we get some good earnings news and the market remains strong.

Now, its your turn(around)
So what do you think, Fool? Will PDS finally start to discover some positive returns? Or will the stock just keep drilling downward?

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.

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.