By David Sterman
As many companies have spent the past few years rebuilding their sales and profits after a deep slide in 2008 and 2009, a handful of companies are still struggling to regain altitude. Their own income statements were decimated by a string of self-induced wounds, and most investors have chosen to shun these stocks.
Yet three badly wounded firms are now on the mend. As they complete their turnaround plans, considerable share price gains may lie ahead.
1. NII Holdings (NASDAQ: NIHD)
This provider of wireless telecom services in Latin America was done in by brutal price wars and a debt-laden balance sheet. The price wars deeply cut into cash flow, which raised serious concerns about NIHD's ability to pay off its loans. By the end of 2012, total debt stood at $4.9 billion, and the company's annual net interest expense approached $400 million a year.
Those debt concerns pushed shares down from $40 in early 2011 to just $4 this past spring, as bankruptcy concerns started to circulate. In response, management announced plans to sell its Peruvian division for an estimated $400 million. That would not only bring in some badly needed cash -- it would also give a sense that NIHD's other operating divisions were worth more than the share price was reflecting.
At the time, management noted that other asset sales in Argentina and Chile were possible, which would further clean up the balance sheet and allow management to focus on the more lucrative Brazilian and Mexican divisions. Those comments quickly catapulted shares above $7, aided in large part by a massive short squeeze, and further asset sales a few weeks later pushed shares past $9. However, shares have drifted back down below $6.50 in recent weeks on concerns that intensely competitive markets could hamper pricing power and cash flow.
Yet there's a catalyst in place for a rebound back to that $9 level. New management, which took the reins in early May, is tasked with boosting cash flow -- or selling assets -- in the all of the company's local divisions. Analysts at Wells Fargo (NYSE:WFC) suggest that the base of assets are worth $13 to $15 a share, net of debt, and even if you apply a hefty discount to that view, this stock would still move toward the $10 mark when further asset sales are announced.
2. Maxwell Technologies (NASDAQ: MXWL)
Back in 2011, this company's "ultra-capacitor" technology gained considerable buzz, pushing its stock above $20. But a slowdown in demand in Europe and China, coupled with an accounting scandal, nearly kicked this company off of the Nasdaq.
I recounted this company's challenges in a recent column on our sister site, and my key conclusion still stands: Despite the mess created by the accounting scandal, "Maxwell's business is still holding its own right now, and the great promise for its ultra-capacitors remains fully intact." At this point, investors need to await the second-quarter conference call, which should be held in four to six weeks. Once it becomes clear that Maxwell is closer to putting its accounting troubles to bed, this stock could see a solid relief rally.
3. Titan International (NYSE: TWI)
This maker of massive tires used in mining and construction appeared poised for a solid 2013 -- until its key customers decided to make its life miserable. Customers such as Deere (NYSE: DE), Caterpillar (NYSE: CAT) and others spotted a slowdown for their own large equipment, and in a bid to build cash flow, decided to unload a hefty amount of accumulated tire inventory on the open market.
Analysts predict Titan will suffer a brutal summer as orders dry up. Estimates for the second and third quarters have been slashed, and these analysts now see Titan earning around $1.70 a share this year, well below the $2.30 a share forecast in place a few months ago. Adding insult to injury, the slowdown in demand will blunt the solid momentum analysts had expected Titan to generate in 2014, as its earnings per share was expected to approach $3. Now, that view is closer to $2 a share.
Still, the long-term earnings power remains in place. Tires wear out, after all. And the stock's quick plunge of nearly 40% from February, to a recent $16.50, more than accounts for the expected near-term weakness.
Risks to Consider: These businesses also operate in economically sensitive environments, and each derives a large portion of sales in emerging markets, which may or may not be on the cusp of slowing sharply.
All three of these companies will discuss these issues on their upcoming conference calls, and if investors develop a sense that the worst of their problems may have passed, then the heavily discounted shares should see solid new support.