Trio of small-cap turnarounds

Picked from among last year's worst-performing small caps, these stocks could see better times ahead.

By TheStockAdvisors Feb 6, 2013 3:24PM
Arrow Up copyright Photodisc, SuperStockBy George Putnam, The Turnaround Letter

Turnaround stocks represent an inefficient niche. Small-cap stocks can also be less efficient. Thus, it stands to reason that small-cap turnaround stocks should be particularly inefficiently priced.

That makes the stocks below particularly interesting. They are culled from the worst performers in the S&P Small Cap 600 last year. They all have solid businesses, decent balance sheets and good rebound potential.

Electro Scientific Industries (ESIO) supplies laser-based solutions that enable precise manufacturing and testing. Management is using the company's strong intellectual property to build out the product line.

The balance sheet isn't an impediment, as cash and short-term investments totaled $172 million at the end of Q2 (March fiscal year). General economic weakness may crimp near-term gains, but the company has ample growth opportunities as it transitions to a broad-based laser micro-fabrication company.

NutriSystem (NTRI) is the number one home delivery weight loss company. A string of quarters with declining revenues and profitability reflect, in part, the sluggish economy coming out of the last recession. The weak results led the board of directors to bring in a new CEO in November.

The company is also introducing some new products and pricing strategies. We can't vouch for the sustainability of the dividend, but it certainly looks mouth watering at the moment.

Quality Systems (QSII) provides health care information systems used in automating medical and dental records. Having been around since 1974, the company is one of the more experienced providers in the sector.

Questions about revenue timing, competitive threats and the loss of an important contract caused the stock to swoon in July, but it has since stabilized.

Increasing federal and state regulation of medical records, as well as the ongoing push for efficiencies in health care, create good long-term prospects for this business. No debt, ample cash, free cash flow, and an attractive dividend make Quality Systems particularly interesting.

More from TheStockAdvisors.com

1Comment
Feb 10, 2013 11:45PM
avatar
Nothing like throwing money down the wishing well,otherwise known as the stock market.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

114
114 rated 1
278
278 rated 2
474
474 rated 3
641
641 rated 4
639
639 rated 5
663
663 rated 6
640
640 rated 7
499
499 rated 8
284
284 rated 9
122
122 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
COPCONOCOPHILLIPS9
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
KOGKODIAK OIL & GAS Corp9
CVXCHEVRON CORPORATION8
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.