Down 30%, These Stocks Are Ready To Bounce Back

Although the major indexes have moved steadily higher during the past six months, a few dozen companies have missed the boat.

Of the 1,500stocks in the S&P 400, 500 and 600, 33 slid more than 30% during the past six months. A 35% slump in Apple (Nasdaq: AAPL) probably qualifies as the biggest plunge that no one saw coming, but many other stocks have blindsided investors as well.

The trouble with these big "losers" is that they quickly get kicked off of most investors' radars. Burned once, these investors are in no mood for further pain. Yet asWarren Buffett has said on many occasions, the greatestinvestment gains come from unloved stocks.

But I've taken a closer look at this group, and I've found a few potentially impressive rebound candidates worth adding to your portfolio.

1. Cirrus Logic (Nasdaq: CRUS)

As the primary provider of audio chips to Apple, it's easy to understand why thisstock soared in the summer of 2012. Explosive demand for Apple's iPhones and iPads led to a string of estimate-topping quarterly results, which eventually pushed Cirrus' stock to $45. But the eventual slowdown behind Apple's 31% drop has pushedshares of Cirrus down an even sharper 43% during the past six months.

Cirrus' management realized that an increasingly tight relationship with Apple would eventually lead to such headaches. Apple has represented more than two-thirds of Cirrus'sales in recent years, which led Cirrus to start spending heavily to branch out into new niches and customerbases . Thanks to robustcash flow and a cash-richbalance sheet , Cirrus' spending went right into research and development (R&D).

The key to reversing the stock's downward move is for management to quantify more precisely how increased R&D and customerdiversification efforts are paying off.

During Cirrus' quarterly conferencecall in January, President andCEO Jason Rhode's comments apparently came off as vague to investors, as the stock kept sliding. That's what makes the upcoming quarterly conference call, slated for April 23, an important one. Rhode has an opportunity to articulate more clearly how the company's current $100 million in R&D spending is paying off with new customers and new industry verticals.

At the moment, expectations remain quite low.Analysts currently expect Cirrus'earnings per share to be stuck in the $3.50 to $3.75 range for fiscal 2013 and 2014, yielding a price-to-earningsmultiple of about 6.

2. AK Steel Holding ( AKS )

Are analysts being too myopic in their outlook for this steel producer?

Most analysts rate shares as "neutral" with price targets in the $3.50 to $4 range, just above where this stock now resides after falling from $7.50 ayear ago and $15 two years ago.

To be sure, AK Steel has lostmoney for two straightquarters , thanks to depressed demand and pricing for steel. The companywill likely lose money in the first half of 2013 before rising to into profitability later this year. To paraphrase what analysts are saying, its shares simply aren't timely.

Yet it's also the case that looking beyondWall Street 's quarter-to-quarter myopia to a longer-term horizon can make investors big profits, even if patience is required.

Let's look at the outlook for AK Steel as seen by UBS' analysts. Although they rate shares as "neutral," they see a steady rebound in pricing and demand for steel in 2014 and 2015, which should have an outsized effect on AK Steel'sincome statement .

For example,revenue is expected to rise 4% in 2014 to $6.03 billion, yet a solidmargin expansion should help operating profits to grow more than 50% to $370 million. By 2015, sales should rise again at a mid-single-digit pace, which would pushoperating income past $500 million, according to UBS. By then, AK Steel would be generating about $1.80 a share in profits.

Still, although shares trade for just $3, or less than double 2015's forecast, few are paying any attention. There's no need to rush out and buy this stock ahead of the company's upcoming quarterly conference call, as the results and near-termguidance will likely be lackluster. In addition, investors will need to gauge the latest trends on the company's debt-laden balance sheet to assess whether AK Steel's cash flow will be sufficient to meet near-term commitments.

But if the balance sheet holds no surprises when its first-quarter results are discussed, then you might want to take action before this stock comes back into vogue. By the time industry conditions improve and analysts become morebullish with theirratings and price targets, shares won't still be stuck at $3. Even if this stock deserved to trade at just six times projected 2015 profits, then shares would rise to nearly $11, or more than triple the current share price. And that's still a far cry from the $65 these shares fetched back into 2008, when the steel industry's dynamics were truly healthy.

Risks to Consider: These stocks have badly burned investors, so any rebound may take some time as investors may be slow to return to the fold.

Action to Take --> If you are looking for new investment ideas with potentially robustupside , you need to move away from the crowd and focus on stocks that most are shunning. As these companies eventually rotate back into favor, analysts -- and investors -- will be talking up their newly lowered valuations and opportunities to regain lost luster.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2016 StreetAuthority, LLC. All Rights Reserved.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest Markets Videos

    Street Authority

    Founded in 2001 by industry veterans, StreetAuthority is a financial research and publishing division of Investing Daily. Our mission is to help individual investors earn above-average profits by providing a source of independent, unbiased — and most of all, profitable — investing ideas. Unlike traditional publishers, StreetAuthority doesn’t simply regurgitate the latest stock market news. Instead, we provide in-depth research, plus specific investment ideas and immediate action to take based on the latest market events.

    Learn More