Updated: 15-Dec-00

The Turnaround Ten

[BRIEFING.COM - Robert Walberg] Come December, investors typically begin snapping up the year's losers in hopes that the stocks will turn it around over the next twelve months. Not this year. Evidence of a decelerating economy, the recent election fiasco and the torrent of earnings warnings convinced many traders to remain on the sidelines. But the waiting game will come to an end, and when it does investors won't waste much time shopping for bargains. Consequently, we thought now would be a good time to identify a number of potential turnaround candidates for next year.

  1. Circuit City (CC) 10 5/16: Unlikely to snap back right away, but bottom seems to be in place as remodeling efforts, solid growth from CarMax group and soft comparisons (by mid-year) leave stock positioned for a solid turnaround in the year to come.
  2. Ford (F) 23 1/4: Tough to imagine the company suffering through a more difficult year than 2000. Pending lawsuits could cap upside potential but at 0.26x trailing 12-month sales, Briefing.com contends that the long-term risk/reward ratio is bullish.
  3. Gap Inc. (GPS) 24 13/16: Higher rates, poor merchandising decisions (particularly at Old Navy stores), stiff competition and tougher economic climate all worked against the store this year. More favorable comparisons and an improved rate environment likely to help out in CY01. And if they get merchandise mix down 2001 could be great.
  4. Gateway (GTW) 18.79: Death of the PC being greatly exaggerated. GTW's biggest crime in 2000 was not growing at the same fast pace as in the recent past. But earnings are still trending higher and the stock is now trading at its cheapest valuations in past 5-years.
  5. Lucent (LU) 18 11/16: Right up there with Ford in terms of lousy years. Good news is that next year has to be better. Right!? Upcoming spin-offs, new management team and discounted valuations make this a compelling long-term opportunity.
  6. Pixar (PIXR) 27 1/8: Tends to rise and fall with its production schedule... Rallies into release of new films and slumps thereafter... With Monsters, Inc. due for wide release in late 2001, stock should begin running no later than end of Q1. If history is any guide, stock likely to test the 45-50 area during hype of movie.
  7. Sapient (SAPE) 11 3/4: Taken out and shot along with rest of e-consulting group, as stock down 84% from its 52-wk high... While many of the smaller fish in the group will be flushed during the current shake-out, Briefing.com expects SAPE not only to survive but to thrive as company's financials among best in the industry... As macro conditions improve, SAPE likely to come roaring back.
  8. UAL Corp. (UAL) 36 1/16: Labor strife, high fuel costs, difficult weather conditions during the peak travel season and the slowing economy sent stock into a tailspin... But crude prices are declining, the company is weeks away from putting its labor issues behind it and the Fed is about to adopt a more accommodating tone... Throw in soft second half comparisons and the ingredients are there for a nice recovery rally.
  9. Wit Soundview Group (WITC) 4 15/16: Poor market climate has stock hovering just above its all-time lows... But this boutique investment company trades at very attractive valuations and should be helped by a more favorable rate/market environment in CY01... Briefing.com also views stock as a takeover target.
  10. Yahoo! (YHOO) 32: Investors have lost faith in one-time high-flyer. But this year's decline has nothing to do with YHOO's execution, as company continued to deliver one strong quarter after another... Rather, decline resulted from change in way market valued Net companies... Difficult ad market also weighing on stock... But much of that news already in the price... Though YHOO isn't cheap - even at today's (relatively) discounted price - Briefing.com contends stock approaching fair value... The market doesn't often give investors the chance to buy quality, leadership companies at fair value... When that chance arrives, it usually pays to take it.

Robert Walberg


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