4 Stocks Set for a Second Half Comeback in 2011

From my perch here in upstate New York, a deluge of rain has made the local roads impassable. The fact that the Dow Jones Industrial Average dropped another 200 points on June 23 just adds to the gloom. Yet strangely enough, I’m feeling bullish. Many of the companies I track are seeing their shares skid lower into real bargain territory. If you “love ’em when they’re hated,” then this may turn out to be a fine time to load up on these bargains when gloom-and-doom is the mantra of the day.

Here are four stocks that have begun 2011 on a sour note but could finish the year with strong gains.

1. RadioShack (NYSE: RSH)
Shares of this electronics retailer surged from $18 to $22 last fall as investors began to suspect the company’s massive retail footprint and hefty cash flow would make it an attractive acquisition target.

Since then, it’s been all downhill. The M&A speculation cooled off and shares fell not just back to $18, but all the way to $13. Why the pummeling? Analysts are telling clients the June quarter will be somewhat soft because a lack of hot products (outside of Apple’s (Nasdaq: AAPL) iPad) and a still-cautious consumer keep foot traffic at weak levels. Consensus estimates call for per share profits to come in at $0.38, but don’t be surprised if RadioShack misses that target by 10%. The weak stock chart is telling us so.

It also doesn’t help that RadioShack was just booted out of the S&P 500 on Friday, forcing index funds to unload shares by nearly 2%.

#-ad_banner-#Still, this is an outrageously cheap stock that is bound to start attracting value investors. How cheap? Well, despite very lackluster sales, RadioShack is still likely to throw off roughly $300 million in operating cash flow this year. The entire company is valued at just 4.5 times that figure.

It’s also important to remember new CEO Jim Gooch has only been in place for a few months after the unsuccessful tenure of his predecessor, Julian Day. Investors should expect bold action from Gooch in coming months. “He brings a high level of focus and intensity, which will serve the company well as it manages through a challenging landscape,” note analysts at UBS.

One key move: more stock buybacks that have already shrunk the share count from 180 million in 2002 to a recent 120 million. RadioShack recently issued a $325 million bond that puts more cash on the balance sheet. “As a result, we expect the company to continue to aggressively deploy capital back to shareholders,” add the UBS analysts. This is an ugly stock chart, but the underlying business is not in trouble. It’s just stuck in the mud for now. But that starkly cheap valuation is too great for investors to ignore.

2. Rentrak (Nasdaq: RENT)
As 2010 came to an end, this stock managed to punch through the $30 mark. Six months later, it has plunged to just $16.

Rentrak, a provider of media viewership data, has been going through a wrenching transition. A previous focus on DVD sales has started to fade as the medium loses consumer appeal. A newer focus on other media habits such as niche cable TV programming is just getting going. As one segment shrinks and the other builds, management has had a hard time gauging how each quarter will fare, and as a result, quarterly profits have missed forecasts by a wide margin for two straight quarters. Another concern: rival Neilsen Holdings (Nasdaq: NLSN) has also begun to offer cable viewing data, looking to gain some market share back that had been lost to Rentrak.

That concern may be misplaced. “We believe Nielsen’s testing of (set-top box) data is in fact a validation of Rentrak’s approach to TV ratings,” note analysts at Kaufman Bros, who believe that shares will more than double to $37 once Rentrak’s current growth initiatives start to really take root. The weak recent quarterly results also have an explanation. “Owing to the introduction of a system upgrade, we think potential new clients delayed purchase decisions,” note analysts at Albert Fried, who recently lowered their target price from $32 to $27. After flubbing two straight quarters, analysts have lowered the bar and now expect Rentrak to earn just $0.12 a share in the current quarter (down from forecasts of $0.20 just 30 days ago). As the company starts to deliver results ahead of forecasts, shares should finally start to reverse the downward trend that has been in place for much of 2011.

3. Akamai Technologies (Nasdaq: AKAM)
I recommended shorting this tech stock last September when shares traded over $50, noting that buyout rumors seemed like a bad catalyst for a recent price spike and “If a suitor doesn’t emerge — and it’s not clear that one will — then shares could give back all of the recent gains.” Shares are now below $30, and I’m changing my tune, seeing decent 30% upside.

To be sure, pricing pressures in the company’s core content delivery network (CDN) market remain in place, which explains why profits are expected to grow only 10% this year even though traffic on Akamai’s network will grow at least twice as fast. The outlook for 2012, though, should be a stronger one. This is because Akamai is starting to push a range of other services and products that help clients manage their media platforms. And those new offerings carry higher profit margins. This is a stock that has always garnered a very high multiple, but now trades at just 16 times projected 2012 profits. If you exclude Akamai’s $1.2 billion in cash, then the multiple drops even lower, closer to 12.

4. Ford Motor (NYSE: F)

Lastly, I need to reiterate my bullish view on Ford, which I most recently spelled out in this article.

Consumers remain under duress around the world, and Ford is still on track to earn nearly $2 a share this year. Profits could double in the next five years as global industry sales eventually rebound. The stock, at just $13, is just too cheap to ignore.


Action to Take –> These stock charts imply that the business at each of these companies is broken. Instead, they are simply at transition points. Each company should post improving results in coming years. When investors sense a bottom has been reached in the market, these are precisely the kinds of stocks that will attract both value and growth investors, causing a sharp rally in shares. Keep an eye on these names and pick one or two of your favorites to possibly pounce on when you get a sense that things are turning. You could end up with a nice gain as a reward.