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2 Turnaround Stocks to Buy Now, If ...

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Yahoo Screen

Just as investors often mistake value traps for value plays, we throw the word turnaround around a bit too freely.

Google “turnaround” and it spits out the following primary definition: An abrupt or unexpected change, esp. one that results in a more favorable situation.

When I pick that apart, it leads me to, as I have in recent articles, classify Nokia as a turnaround play, but not Research In Motion.

Of course, it’s incredibly subjective, but I look at Nokia, at least relative to RIM, as a company that has made “abrupt or unexpected change.”

Nokia quickly reorganized management, ditched an operating platform, and found a major partner. Considering that RIM did none of the above, I think it’s sane and logical to categorize Nokia’s moves as not only abrupt and unexpected, but positive. Whether they’ll yield “favorable” results remains to be seen, but Nokia has embarked on a turnaround; any wholesale improvement in RIM’s situation would be better defined as a “shocking development.”

With that as a backdrop, I look at Yahoo and think “turnaround play.”

Jim Cramer threw his weight behind the company yesterday in a video for TheStreet. Noting that the stock could be preparing to break out of its $15 range, Cramer championed Ross Levinsohn as the right man for Yahoo’s CEO job. I agree. Thus far, he has done many of the right things, rather aggressively, in a short period of time.

A story in the Los Angeles Times laid things quite clearly and succinctly:

Levinsohn’s two immediate predecessors — Carol Bartz ... and [Scott] Thompson ... were consistent with co-founder founder Jerry Yang’s vision of Yahoo as a tech giant.

Levinsohn sees Yahoo differently. He touts the company as a digital media colossus — in his words, an “untapped jewel” -- with some 700 million users around the world. In presentations to advertisers, he trumpets the company’s dominance in 11 media categories, including finance, news, sports, and entertainment.

Bingo.

I could never figure it out — I use Google for two primary purposes: search and email. Relative to Yahoo, Google clearly dominates search. And, let’s face it, while plenty of people use Gmail as their main email account (I do), Yahoo Mail amounts to nothing more than a junk mail account. In fact, I have three Yahoo Mail accounts expressly set aside for that purpose.

As Levinsohn points out, Yahoo dominates in several media areas. It serves as my go-to site for practically all news and information. Yahoo committed one of the Internet’s biggest blunders over the last several CEOs: It never hyper-focused on media and harnessed its massive base of users into something bigger.

Yang, Bartz, and Thompson could not be more off the mark. Just because Yahoo keeps its headquarters in Silicon Valley does not automatically make it a tech company. What is so “tech,” in the Valley’s sense of the word, about Yahoo? Is it the company’s “search technology?” Obviously not.

Like Cramer said, we cannot necessarily predict what Levinsohn will do, but every once in a while you just have to trust a sharp executive, who gets things done, to get things done. When you take that hop of faith on Levinsohn, you’re not doing it blindly.

By viewing Yahoo as a digital media powerhouse, Levinsohn proves he gets it. He did more in a few weeks than Bartz did during her entire bombastic fail of a tenure. The partnership Levinsohn inked with Spotify was enough to surpass the level of accomplishment achieved during the previous regime.

If Yahoo’s board does not butt in. If Yahoo removes the search bar from its homepage and completely abandons its roots as a search engine. If it only uses its email interface to leverage its member base. If it pulls a Clear Channel and brands itself as a cross-platform digital media powerhouse. If it does all of these things, I love the stock as a turnaround play at anything under $20 a share.

The board at Best Buy absolutely has the company’s fate in its hands as it stews through its CEO search. I still can’t figure out what it’s waiting for. It put a recent young hire with tech/Silicon Valley roots in charge of several crucial aspects of its business, yet, while he’s in the game, Best Buy President Stephen Gillett has yet to officially get the CEO gig.

The media continues to refer to recent moves by Best Buy as part of its turnaround. There is no turnaround yet. Firing people, reducing square footage, and copying the format of the Apple store here and there does not signal a turnaround.

A turnaround does not officially commence at Best Buy until the company names Gillett or somebody like him CEO. You’re not at the beginning or in the middle of a turnaround when you have an interim CEO (with health-care roots) who really cannot articulate anything resembling an inspiring vision in place.

Just as investors should take care to distinguish between value traps and value plays, we should use the same caution when assessing whether or not a stock is a turnaround play. A broken and beaten down company with a depressed stock price is not a value play or a turnaround play by default. The company must do something to trigger meaningful catalysts to unleash value and kick off a turnaround.

(CNBC.com and Yahoo have a business alliance to share and co-produce editorial content.)

—By TheStreet.com Contributor Rocco Pendola

Additional News: The Short List for Yahoo’s New CEO

Additional Views: Yahoo’s Levinsohn ‘Gets It Right’: Analyst

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Disclosures:

TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks. At the time of publication, Rocco Pendola was long Nokia.

Disclaimer

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