McDermott International (MDR), Petroleo Brasileiro Petrobras SA (ADR) (PBR): This $7 Turnaround Play Could Pop 40% In 6 Months

If these changes result in improving cash flow in 2014 and 2015, look for investors to focus on what has become a deep value play. The company’s market value of $1.8 billion is not far above tangible book value of $1.7 billion. And the company still carries roughly $400 million in net cash on its books.

As a solid vote of confidence, CEO Johnson recently plunked down $500,000 of his own money to buy the beaten-down shares.

I don’t expect this stock to move back up into the mid-$20s, where it stood in early 2011. Not if management intends to shrink the company a bit in order to grow stronger. Still, a move up to $12, which would reflect a 2014 price-to-sales multiple of around 0.75, is quite reasonable. That’s a fair price to pay for a company with broken but fixable problems that still faces a sizable market opportunity as offshore energy exploration trends continue to strengthen.

Action to Take –>

— Buy MDR at prices up to $8.60

— Set stop-loss at $6

— Set initial price target at $12 for a potential 40% gain in six months.

This article was originally published at ProfitableTrading.com

Traders Could Make a Double-Digit Profit on This $7 Turnaround Play

P.S. — I’m not a market technician, but I’ve seen enough charts in my day to know when a pattern is shaping up to be … interesting. I encourage you to check out my colleague Amber Hestla’s presentation to learn more about what the dreaded “triple top” could mean for your portfolio in the coming weeks.

– David Sterman

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