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 we can provide five possible turnaround ideas from our Motley Fool CAPS community. These stocks, 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:

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.

Amen to AMN
With thousands of ways to play the market, it's difficult to stay completely focused on just one idea. For example, no matter how much I love the health-care industry as a way to profit from the aging population, I've been focusing my research on resource and international growth plays lately. Luckily, our CAPS community always brings my attention back to the health-care space by coming up with unique ways to play the baby boomer boom. AMN Healthcare, a temporary health-care staffing company, is one of CAPS' favorite turnaround candidates and a stock that I intend to research further (hopefully with no distractions).

AMN is the largest health-care staffing company in the U.S., holding leadership positions in the most attractive segments -- travel nurses, temporary physicians, and short-term nurses. Last Monday, AMN reported a 27% increase in Q2 profit, but the stock plummeted a stomach-wrenching 22% anyway.

Why? Despite those strong results, management was forced to lower its full-year earnings outlook by roughly 9%, thanks to lower demand forecast during the summer months (driven primarily by softness in hospital admissions). As I've written several times, lowered expectations don't exactly bode well for a stock over the short run, but such situations often provide the opportunity to profit over long periods of time. For our CAPS community, AMN represents such an opportunity.

Despite management's forecast short-term slowdown, the long-term trends still seem to be overwhelmingly in AMN's favor. According to a study conducted by the Health Resources and Services Administration, the nursing shortage in the United States is expected to reach a whopping 1 million by 2020. Of course, able competitors like Cross Country Healthcare (NASDAQ:CCRN) and Labor Ready (NYSE:LRW) will have a say in servicing that shortage, but AMN's reputation and massive network -- it has already placed roughly 7,000 health-care professionals all across the country -- puts the company in an enviable position going forward.

After the huge drop in share price, AMN now trades at a reasonable PEG of about 0.80. Additionally, three Wall Street All-Star firms (whose picks we track on CAPS) -- BMO Capital, Caris & Company, and Stifel Financial -- also like AMN. Add it all up, and you've got a turnaround candidate that's certainly worth investigating. 

Now, let's hear it straight from our community...
hersh43 touches on AMN's tailwinds:

AMN Healthcare Services operates 11 health care staffing companies which supplies travel nurses as a large part of their business. Our aging boomers will increase their services for years to come. The lack of nursing graduates to meet the demand has created opportunities for AMN.

daveswaves, meanwhile, takes a more detailed approach: "[W]ill see margin improvement over next 6-18 months as operating leverage is realized and business mix improves (i.e. permanent staffing increases as % of total revenue). (Expected) industry top line growth of mid-to-high single digits, but AHS will grow faster."

Finally, CAPS All-Star ash1348 keeps it short and to the point: "Good technicals, good fundamentals, plus attractive industry and great valuation at this point."

Now it's your turn(around)
So what do you think, Fool? Will AMN Healthcare bounce back from its beating? Or will investors just continue nursing their losses?

The great thing about turnarounds is that they offer an exceptional way to generate excess returns against 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. Click here to get started, absolutely free.

More tasty, terrific, and (hopefully) triumphant turnaround treats await.    

Labor Ready is an Inside Value newsletter recommendation. You can find out why with a 30-day free trial.

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