Four Low-Priced Turnarounds

07/02/2014 9:00 am EST


George Putnam

Editor, The Turnaround Letter

The turnaround stocks discussed below all currently trade below $5 per share, but unlike the typical "penny" stock, they all have considerable operating history, explains George Putnam, editor of The Turnaround Letter.

There is no guarantee that each company will successfully complete its turnaround, but if it does, its stock price could appreciate dramatically.

Aeropostale (ARO) has fallen prey to the ever changing whims of teen fashion. Management is taking steps to control costs, largely by closing stores.

It has entered an agreement—including a cash infusion, board representation, and ownership stake—with Sycamore Partners, a private-equity firm with a strong reputation in the retail industry. However, the company is still burning a lot of cash.

EarthLink (ELNK) recently traded at a 17-year low, the result of a stream of ongoing restructurings. The company is a leading Internet service provider that has sought to transform itself into a broader provider of IT services.

A new CEO took the helm in January 2014. EarthLink has decent product offerings and a loyal customer base, but it still has a lot of work to do to remain relevant in the fast-changing tech world.

ION Geophysical (IO) was a pioneer in advanced seismic technologies that play a key role in oil and gas exploration. While the top line grew in 2013, restructuring charges led to a large loss.

Some year-end operating momentum, however, has continued in early 2014. A director stepped up and purchased 100,000 shares in early May at $4.07.

Zynga (ZNGA) rode its stable of popular games to a hot IPO in late 2011. Then, after rallying strongly in early 2012, the stock proceeded to lose more than 85% of its value in just eight months as revenues tumbled and losses soared.

In July of last year, Zynga was able to lure Don Mattrick away from Microsoft where he was credited with marshalling the strong success of the Xbox gaming platform. Recent operating results have shown signs of improvement as Mr. Mattrick has spearheaded cost savings.

The gaming sector is challenging, but the fact that much of Mattrick's compensation is tied to the stock price should give investors some comfort.

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