"You can invest for all the right reasons and still get the wrong result," notes long-standing turnaround stock expert George Putnam, referring to the poor performance of the pharmaceutical sector in recent years.
Here, in his industry-leading The Turnaround Letter, he offers a fascinating review of 10 leading drug stocks which he now believes offer a combination of growth potential at "pretty cheap" valuations. Here is his overview.
"In 2000 and 2001, when the Internet boom was becoming a bust, many smart investors turned away from technology stocks and put their money into drug stocks. How could you go wrong with the big pharmaceutical companies?
"Demand for their products was growing as the population aged. These companies had huge research and development programs that seemed to keep cranking out new blockbuster drugs. And most of them had great balance sheets, with many paying handsome dividends.
"Much of this reasoning has been borne out in the intervening years. Many large drug manufacturers have rung up substantial revenue gains over the last decade. So what's happened to the big drug stocks? With few exceptions they have gone sideways or down – in some cases down a lot.
"Ford Motor Co. (NYSE: F) recently surprised Wall Street by posting its first profit in ages," notes Mark Skousen in The Turnaround Trader. Here's the advisor's bullish outlook on the auto maker.
"Ford announced a $100 million profit in the quarter, even though sales lagged General Motors and Toyota. I see Ford as a deeply undervalued company that finally is producing good quality cars, both here and abroad, and I don't think higher gasoline prices will have much effect on the turnaround.
"Ford must be seen as a global producer. And foreign sales are booming for Ford and GM. Moreover, now that Ford has decided to include Microsoft's Nuance-powered Sync voice control system in some of its 2008 models, it could help improve sales dramatically here in U.S. showrooms.
"If the profitable quarter continues, Ford now is selling for only 14 times next year's earnings. With revenues of close to $40 billion in the quarter, a smart business person certainly could cut the fat from that and turn a profit, and that is exactly what turnaround specialist CEO Alan Mulally is doing.
"Under his guidance, Ford saved $1.7 billion from cost reductions in the quarter and agreed to sell Jaguar and Land Rover. Wall Street likes what Mulally is doing, and so does billionaire investor Kirk Kerkorian, who is buying its stock. Let's join him by buying Ford."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
Shares in weight-management company NutriSystem Inc. (NASDAQ: NTRI), which have starved investors over the last year, falling from over $70 to as low as $12.55 a share, are surging more than 30% today on news of a new CEO and the release of preliminary numbers much stronger than analysts had expected.
Earnings estimates for the first quarter show revenues of $216 million, $13 million more than analysts had figured. The company also named Joseph Redling as the new CEO.
According to a report in Forbes, current Chairman and CEO Michael Hagan said: "The business is in good shape as we enter the second quarter. The business performance in the first quarter was better than expected as the marketing efficiency in the latter stages of the quarter showed improvement, and it's certainly stabilized versus January trends. We also continue to witness improvement in our customer retention efforts and in the business of reactivating ex-customers."
"Despite a host of near-term issues, Sprint (NYSE: S) has many of the attributes we look for in a turnaround stock: a solid core business, well-known brands, new management, manageable cash flow and even an activist shareholder to stir things up," notes George Putnam, III.
In his industry-leading The Turnaround Letter, the advisor looks expert at the firm, which he notes traces it roots back to the Brown Telephone Company in Kansas in 1899.
"When the long-distance market was opened to competition in the early 1980's, Sprint moved in aggressively. In early 2005, Sprint acquired Nextel, which had become a major wireless competitor with its innovative 'push to talk' technology that combines elements of the walkie talkie and the cell phone.
"The $35 billion transaction was supposed to vault Sprint into the leadership of the wireless market. Unfortunately, the combined company stumbled. Difficulty in integrating the two companies led to poor customer service which drove some consumers away.
"Investors, who had initially applauded the Nextel acquisition, pushing the stock above $27 in mid-2005, became concerned, and the stock has been in a steady decline for the past two-and-a-half years. And the company's poor earnings report on February 28 further discouraged Wall Street.
"Over the last couple of months it has seemed like the only investors willing to put money into U.S. and European financial companies were big Asian and Middle Eastern institutions, many of them government sponsored," observes George Putnam.
"Should you follow in their footsteps?" asks the editor of The Turnaround Letter. Here is his review.
"There may be good reason to do so. These foreign institutions are staffed by smart people who do their homework, have long time horizons and they like companies with strong brands or market positions." Here, he looks at fivefiancal frms that have received cash infusions from sovereign funds.
"Some of these investors have scored big wins in the past. For example, Prince Alaweed bin Talal of the Saudi royal family bailed out Citigroup once before. He injected new equity into the bank in late 1990 during the last real estate related financial crisis. He bought close to the absolute bottom, and even today his Citi stock is worth many times what he paid for it.
E*Trade (NASDAQ: ETFC) "is a high higher-risk trade, so do not bet the house; however, I believe the opportunity is still compelling," says Ian Cooper in Small Cap Trading Pit.
"About 10 insiders are betting heavy that E*Trade Financial will turn itself around this year. The filings are revealed here:
Hayter, director 4,917 at $4.06
Layton, director 245,800 at $4.06
Fisher, director 31,806 at $4.06
Randall, director 29,500 at $4.06
Parks, director 24,586 at $4.06
Raffaeli, director 12,293 at $4.06
Lilien, acting CEO 7,376 at $4.06
Weaver, director 68,843 at $4.06
Brewster, director 24,586 at $4.06
Willard, director 11,942 at $3.98 and 13,058 at $3.99
"And for them to be buying after a one-month triple digit move speaks volumes on confidence, which may explain the latest surge in option volume. Sure, the stock took a major dive in 2007, but that's because it got itself involved in a business it shouldn't have been in -- subprime.
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"My favorite stock for 2008 is Motorola (NYSE: MOT)," says George Putnam, editor of The Turnaround Letter. "There is a lot more to Motorola than its latest cell phone.
"The company has continually delivered innovative engineering, and it has a diverse product line, a strong global distribution network and a powerful brand name. Beyond cell phones, Motorola's other divisions have leading positions in a number of high-growth markets including set-top boxes, RFID and Wi-Max.
"We believe it won't be long before these products are joined by a new cell phone that will capture the fancy of both consumers and investors.
"Motorola has a very solid balance sheet with $7.6 billion in cash and relatively little debt. The company has been aggressively repurchasing stock, and it has paid a dividend for 240 consecutive quarters, a rarity for a technology company."
Looking for a former billion-dollar company that has fallen off most investors' radar? Have a look at Verint Systems Inc. (OTC: VRNT). As part of the Comverse Technology, Inc. (OTC: CMVT) options backdating scandal, the company was delisted from the NASDAQ because of filing issues. Comverse was delisted as well, and its CEO fled to Africa after he was wanted by U.S. authorities. Verint is a leading provider of analytic software-based solutions for security and workforce-enterprise optimization. Their solution generates actionable intelligence through the collection, retention and analysis of various communication networks.
The company today received an upgrade from JP Morgan. The stock has gotten crushed over the last 2 years falling from a high of over $40 to today's price in the $17.40 range. Business is doing well, and as that they are in the security space, that should help valuation. There has been speculation that either the parent Comverse will get bought or they will sell off their divisions, Verint among them. This sale would fetch a hefty premium, and with a market cap in the $500 million dollar range, this could get juicy for investors. Another potential catalyst, would be for them to get current in their filing and potentially regain the NASDAQ listing, which would get them back on institutional investors radar screen.
If you are looking for an interesting turnaround story for '08, check out Verint.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer owns stock and is long both VRNT.pk and CMVT.pk. He has no position in any other stock mentioned as of 12/5/07.
"While the stock has rebounded a bit from its August lows, we view this as a great opportunity to buy Amgen (NASDAQ: AMGN), one of the premier names in a key industry," says George Putnam.
In his The Turnaround Letter, he explains, "An interesting list of value investors, including David Dreman and Bill Miller, have accumulated the stock. We recommend joining them." Here is his review.
"Deriving its name from Applied Molecular Genetics, Amgen began in the early 1980s developing products based on advances in recombinant DNA and molecular biology. The company's Epogen and Neupogen products became the biotech industry's first two blockbuster therapies.
"Today, Amgen is the world's largest biotechnology company. From its IPO in 1984, the stock went on a 16-year run from a split adjusted $0.08 to over $80 by late 2000! But Amgen's revenue growth rate slowed following the turn of the century, and investors began lowering the premium they were willing to pay for the stock.
"More recently, investors were spooked by regulatory questions about two of the company's key drugs Epogen ($2.5 billion in 2006 sales) and Aranesp ($4.1 billion). As a result, in August the stock dropped below 50 for the first time since early 2003.
"The companies that will fare the best when the next credit crunch hits are those that have large amounts of cash," says turnaround expert George Putnam. "With that in mind," he adds, " we looked for companies with lots of cash, little debt and good businesses in some form of a turnaround."
Putnam explains, "Corning has transformed itself from a marketer of housewares into a leading provider of optical fiber as well as precision glass used in liquid-crystal displays. It also has a presence in the environmental and life sciences industries.
Motorola (NYSE: MOT) is a long-term holding in the "Deep Discount Portfolio" compiled by Nathan Slaughter. This portfolio from his Half-Priced Stocks newsletter focuses on what he believes are the "most undervalued stocks on the market."
Regarding Motorola, he explains, "When we first added mobile phone and wireless equipment manufacturer Motorola to our Deep-Discount Portfolio back in March, we knew the company was headed for a temporary business slump."
As expected, he states, Motorola has struggled since then, surrendering market share to Nokia (NYSE: NOK) and Samsung and reporting back-to-back quarterly losses.
Furthermore, he adds, Wall Street has been frustrated with the firm's lack of new product development, particularly given the excitement surrounding the successful iPhone launch from Apple (NASDAQ: AAPL).
In recent years, Slaughter contends, Motorola has posted impressive 40% growth in handset unit shipments, tops in the industry. However, he observes, since hitting a homerun with the wildly popular Razr phone, sales have cooled off, and the company now needs to reinvigorate its lineup.
Fortunately, the advisor argues, management has outlined plans to do just that. In fact, the firm is planning to unveil not just one follow-up product, but a whole wave of new phones.
Texas Instruments (NYSE: TXN) fell after announcing that revenues and earnings fell slightly on weaker demand for its calculators and other products. But that news has not deterred Mark Skousen, who states, "I'm still upbeat that Texas Instruments will turn the corner and move higher."
Indeed, the editor of The Turnaround Trader says, "Though most tech stocks are selling at lofty heights, I consider Texas Instruments a real bargain."
Skousen continues, "With profit margins at 30% and an expanding market around the globe, Texas Instruments has an impressive track record of increasing free cash flow."
In addition, he notes, the company has built up $3.3 billion in cash with no debt. Last quarter, he notes, revenues and earnings fell slightly, but that he says is "an anomaly." He suggests, "TXN has been on a roll for several years, and there's no evidence of it turning back.
The advisor concludes, "Texas Instruments reached $100 a share during the go-go years of the Internet bubble, but today it is at a third of its all-time high. It's time to get aboard."
For more aggressive traders seeking "potentially greater rewards", albeit with much higher risk, the advisor suggests the January $45 calls.
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.
"You can invest for all the right reasons and still get the wrong result," notes long-standing turnaround stock expert George Putnam, referring to the poor performance of the pharmaceutical sector in recent years.
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For 25 years, Steven Halpern, editor of 
"The companies that will fare the best when the next credit crunch hits are those that have large amounts of cash," says turnaround expert George Putnam. "With that in mind," he adds, " we looked for companies with lots of cash, little debt and good businesses in some form of a turnaround."
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