BusinessWeek in Brief: Three Turnaround Stocks

A brief summary of actionable stories from this week's BusinessWeek magazine.

• DryShips Could Change Current Course. Bulk shipper of dry commodities DryShips (DRYS) has caught the eyes of some experts, according to Business Week, after falling from $130 in October to about $61 in mid-January. The magazine says investors could see a turnaround in the stock, as experts will be unable to ignore the company's 3.15 price-earnings ratio and stable earnings. For 2008, the company is expected to earn $20/share. Skeptics see DryShips' $405 million investment in the Norwegian offshore driller Ocean Rig as a step in the wrong direction, because it is removed from DRYS's from its core shipping business. But Robert Johnson of Satuit Capital, who says DryShips is one of its largest holdings, believes Ocean Rig will be "a sterling investment in the next two years." Last year, the company traded at about $50, before making its run to $130. Douglas Mavrinac at Jefferies Group sees a similar scenario playing out. He has a 12-month price target of $160 and said the stock is "extremely oversold."
• Microchip Technology Up on Buyback. Shares of Microchip Technology, a producer of microcontroller chips in appliances and cars, may have touched a bottom. Business Week points out that the company has crept up to about $30 since touching $27 in November. Shares traded at $42 in the middle of 2007, but like many chipmakers, had a difficult second half of 2007. The turnaround can be credited to the board's approval of a 14.3 million share buyback plan. Sarat Sethi of Douglas C. Lane & Associates, which owns shares of MCHP, has noticed the company prefers upping its dividend when its stock breaks down. However, this time management decided to buy its own stock, signaling the firm's confidence in future performance. Cody Acree of Stifel Nicolaus has a price target of $42.
• Bear Believer. Billionaire Joseph Lewis increased his stake in Bear Stearns (BSC) from 9 million to 11 million shares last September, after an options strategy went against him. Since the move, the largest single share holder of BSC stock has watched the value of his position fall from $1.2 billion to $827 million. Lewis, who made his money shorting the British pound in 1992 and the Mexican peso in 1994, has been in similar situations and come out ahead. He purchased a controlling stake in the English soccer team Tottenham Hotspur in 2000 for $1.10/share, and watched it trade down to $0.27. It currently trades at about $2.70/share. Having said that, Bear Stearns will not be an easy turnaround. The company had two of its major hedge funds fail and watched a vital part of its business, mortgage-related investments, suffer a crushing decline. "Bear became a one-trick pony, and now its business model is broken," says Dick Bove, analyst with research firm Punk Ziegel. "It's one of the worst investments of all time." There have been rumors the company will be bought up by a rival, but those speculations have been vague. With such a massive position in a downward trending company, many are curious of Lewis's next move. A takeover attempt seems unlikely, although Lewis does have experience with such an approach. In 1995, Lewis unsuccessfully tried a takeover of Christie's auction house after building up a 29% stake. He later sold his chunk for more than a 100% return. Lewis may have little choice other than to take a passive role, while new CEO Alan Schwartz tries to rebuild the company.