5 Stocks That Will Bounce Back in 2008

There's an interesting poll on Yahoo! Finance this morning. Readers are given five companies and asked to determine "which beaten down stock will perform best through year-end."

39,694 votes in, this is how things stand:

Don't let the percentages fool you. It's not a surprise to find that the early results line up in the exact order of the respective market caps. The bigger companies, like GE and its $335 billion market cap, will have bigger shareholder bases than the smaller players, like Crocs and its $2 billion market valuation.

I'm just intrigued by the process of ferreting out the five poll candidates, because I actually believe that all of the stocks will bounce back this year.

The long road home
Citigroup -- and, to a lesser extent, GE -- have been victims of the crisis in the financial-services industry. Things may not get better in the near term. Last night, Oppenheimer banking analyst Meredith Whitney even predicted another dividend cut for Citi's tattered, yield-hungry investors.

Starbucks is scaling back its expansion plans. Intel is suffering through a margin crunch with its flagship chips and getting slammed in the cutthroat memory chip market. Crocs keeps growing, but booming inventory levels are spooking investors.

In short, all five companies have their problems. Your stock doesn't get slammed to the point where you wind up on a turnaround poll if you didn't do something wrong. However, it's amazing to see what share-price dips and growing earnings will do to turn stocks that once commanded lofty valuations -- like Starbucks and Crocs -- into value-hound fodder.

Have you seen the forward multiples on these stocks?

Did you ever think you'd be able to buy Starbucks at an earnings multiple in the teens? Citigroup and Crocs are trading for less than half of last year's highs. Even if they are ultimately valued as half the companies they used to be, we're talking about some serious upside for a pair of companies with single-digit P/E multiples.

Nobody's perfect
Again, these companies aren't supposed to sound appetizing at first. They are companies coping with everything from faddish tendencies (Crocs) to an onslaught of competition (Starbucks) to the potential of asset markdowns (Citigroup).

It's also a challenge for investors to warm up to these companies. I've been a battered Crocs bull, but I always found Intel to be too cyclical, GE to be too stodgy a conglomerate, and Starbucks to be too ubiquitous for the kind of multiples it was commanding.

I just know bargains when I see them. When GE had bulls cheering on former head honcho Jack Welch as he grew his empire -- and tagging smaller diversified conglomerates like Tyco (NYSE: TYC) as Baby GEs -- I never bought in at more than twice today's going profit multiples. These days, GE is starting to ping on my radar.

The beauty here is that the pros still expect these companies to continue to grow. If we go ahead to 2009, Starbucks and Crocs are trading at just 16 and 8 times next year's bottom-line targets, respectively.

Investors who have approached Citigroup as a yield play may have been burned over the past year, but it's hard not to like the company's current valuation -- even if it has to slash its dividend again.

Intel is everywhere, and that isn't going to change. Even if you're a card-carrying member of the AMD (NYSE: AMD) Fan Club, you can buy as many shares now as you could have bought in either company a year ago and still have enough money to make a sizable investment in its rival. Yes, cats and dogs can live together in the same portfolio at today's prices.

Have all five of the turnaround stocks bottomed? Of course not. Investors may suffer through a few more bumps and bruises in the coming months. However, your chances of timing the bottom are about as good as your odds of nailing the top a year ago. You have to set that aside and ask yourself if these five stocks are worth owning at today's prices based on the current fundamentals.

In all five cases, I find myself nodding along.