In this article I am looking at a unique duo of stocks, those that are trading with mindboggling multi-year losses but have shown recent strength to produce great short-term returns. The goal is to look at each without bias, and determine if there is any value to these recent breakouts.
The Little Engine that Could
After YRC Worldwide, Inc. (NASDAQ:YRCW) posted its Q1 earnings, resulting in its stock doubling, I was very critical and questioned the upside of this company. After taking a closer look, I still have questions, but not as to whether or not upside potential is present but rather if fundamentals improvements are sustainable.
YRC Worldwide, Inc. (NASDAQ:YRCW) has had a good May, returning gains of 150%, but is still lower by 99.66% over the last five years. Therefore, YRC Worldwide, Inc. (NASDAQ:YRCW) was at its lows of lows, and as I assess the company it’s not fair to seek operational perfection without red flags, but rather upside based on a stock that has lost more than 99% of its value.
Here are the facts: The company has improved its operating income by $58.5 million year-over-year during Q1; its bid to buy Arkansas Best would give the company a growing and profitable segment with good synergy; and the stock is VERY cheap! YRC Worldwide, Inc. (NASDAQ:YRCW) has already gone through all the fears surrounding bankruptcy and has appropriately lost the faith of most shareholders. With that said, the same rules apply to a company such as YRC Worldwide as to other companies I like such as Rite Aid; they are so cheap that all it takes is very minor operational improvements to create massive upside.
YRC Worldwide, Inc. (NASDAQ:YRCW) trades with a market cap of $165 million and sales of almost $5 billion, making its price/sales ratio 0.03! This is unprecedented in the market, and in an industry that trades at 1.30 times sales. Because it is so cheap, if YRC Worldwide, Inc. (NASDAQ:YRCW) can continue to improve it could very likely become the best performing stock in the market for a number of years. In my opinion, its upside is worth a very small risk following Q1 earnings.
Taking A Chance on the Recovery of Greece
The call option which is known as National Bank of Greece (ADR) (NYSE:NBG) has seen a mindboggling 260% return since April 9 as a number of bullish plans are implemented for both the entity and the Greek financial system. For one, the National Bank of Greece (ADR) (NYSE:NBG) secured enough private capital in its recap plan, which equated to more than 10% of the financing.
This will ultimately keep the bank from being nationalized, which therefore keeps it privately owned. Thus shares will be heavily diluted, but it appears as though both investors and the rating agencies are impressed with the bank.
Last Thursday Fitch upgraded the Greek banking sector from CCC to B- following the capital raise and its avoidance of being nationalized. With the financial industry as a whole seeing some signs of life, many are buying ahead of a recovery in hopes that National Bank of Greece (ADR) (NYSE:NBG) will recover some of its massive losses over the last few years.
In the last five years alone, it has lost 95.78% of its value, trading with a $2 billion market as Greece’s largest financial institution. With that said, there is still a lot of risk associated with the Greek financial system and these banks are heavily diluted. Thus I still suggest investing in the Global X Funds (NYSEMKT:GREK), which will still give you high exposure to National Bank of Greece (ADR) (NYSE:NBG); as it makes up more than 7% of the ETF. Over the last month it has gained 42%, and will continue to gain if the Greek economy is improving. If National Bank of Greece (ADR) (NYSE:NBG)’s rally was to reverse abruptly, you’d be better protected with Global X Funds (NYSEMKT:GREK) along with being more diversified in a high risk market.
Conclusion
In my book Taking Charge With Value Investing (McGraw-Hill, 2013) I break portfolios down into holdings that serve a purpose, and one of those “purposes” is speculative holdings. These speculative holdings have different degrees of risk and should be determined in your portfolio based on total size and risk assessment. However, it is good to have speculation in your portfolio, but only in very small amounts. These investments have massive upside potential, as small investments can return large amounts of earnings to your portfolio. With that said, there is also a great deal of risk associated with these investments, thus meaning that investors must perform very thorough due diligence. Personally, I think YRC Worldwide is interesting, and I’d watch it closely. But for National Bank of Greece (ADR) (NYSE:NBG), I’d definitely go in a different direction.
The article Are These Impressive Comeback Stocks A Buy? originally appeared on Fool.com is written by Brian Nichols.
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