This is a good time to run a large, publicly traded company. 

Regardless of business conditions, most share prices remain well above the lows seen back in the Great Recession of 2008, and not far from all-time highs. In fact, nearly 98% of the 500 stocks in the S&P 500 are trading within 30% of their 52-week highs.

#-ad_banner-#Yet a handful of companies would like to forget the past year. Their shares have plunged sharply, and they are now deeply out of favor with investors.

But remember Warren Buffett’s investing maxim “The best time to buy stocks is when they are hated.”

That’s because these companies have a much greater capacity to win new converts — if they can improve operations — at least when compared with companies that are already firing on all cylinders and much-loved by investors.

These eight companies all reside in the S&P 500 and have fallen more than 30% from their 52-week highs.

The key issue for these broken stocks is “fixability.” Do they have the levers in place to improve operations? Or are broader industry conditions set to improve? If the answer is no to those questions, then these stocks are dead money.

Let’s look at Newmont Mining (NYSE: NEM) as an example.

On a company-specific level, this gold miner has all-in cash production costs of $1,100 to $1,200 an ounce, which, as I noted back in September, is above the industry average. And as I also noted a few weeks ago, the the recent rally in gold prices appears to have ended, and the precious metals has slipped back below $1,300 an ounce. In effect, there are no catalysts — internal or external — to help boost shares of Newmont.

You’ll also find a group of hated stocks among the companies that provide offshore drilling rigs. Both Transocean (NYSE: RIG) and Diamond Offshore (NYSE: DO) have fallen more than 30% from their 52-week highs, as is the case with other rig owners outside of the S&P 500. These companies have fallen prey to a cycle of overbuilding that is flooding the market with too many rigs, and therefore pushing down lease rates. 

As analysts at UBS note, “rig demand has materially slowed in (the first half of 2014) and will show only a modest recovery in (the year’s second half); rig utilization will still remain below ’13 levels. In our view, the IOC’s (international oil companies) are postponing some of the larger projects due to both financial and people constraints.”

As a result, there are no positive catalysts in sight to help these stocks in 2014. The fact that Transocean sports a 5.4% dividend yield only means that shares are unlikely to fall much further. 

Other lagging stocks face major industry changes and look poorly positioned for long-term growth: Home security provider ADT (NYSE: ADT) is seeing its business undercut by cable and phone companies that now offer similar services at lower prices; document storage firm Iron Mountain (NYSE: IRM) has seen its business start to shrink as companies produce and store fewer printed documents; and International Game Technology (NYSE: IGT) is having a hard time landing new business as casino operators extend the usable life of existing gaming machines.

Yet there are clear cases where a company has the ability to deliver improved financial results. Retailer Best Buy (NYSE: BBY), for example, is in the midst of a massive cost-cutting program that could push earnings per share (EPS) north of $3 a share by fiscal (January) 2017, as I recently noted on our sister site ProfitableTrading.com.

Avon’s Long Slog Back
Shares of cosmetics purveyor Avon Products (NYSE: AVP) aren’t merely slumping in relaiton to the 52-week high — they’ve been under pressure for more than half a decade.

An international expansion has been mired with missteps, leading to operating losses in key growth markets such as South Korea. And the company has been the target of federal investigations since 2008 for possible violations of the Foreign Corrupt Practices Act. More than $300 million has been spent on legal defense, and Avon has had a lot of turnover at the executive level.

Avon CEO Sheri McCoy, who has been at the helm for the past two years, had hoped to put the company’s legal issues to bed. Avon allegedly offered $12 million to settle the allegations, though federal prosecutors are reportedly seeking more than $100 million in fines. But for a company with more than $1 billion in cash on hand, a payout that large can be tolerated. If and when this issue is resolved, look for a mini-rebound in the stock.

Yet McCoy also needs to fix what is clearly a broken business. Sales are on track to fall in the 5% to 7% range for the third straight year, largely due to a massive disruption in its U.S. operations. The base of U.S. sales reps has shrunk more than 15% over the past year, and management has emphasized plans to fix the flagship domestic operation. At a February 2013 retail conference, Avon’s executives announced plans to focus more resources on the Hispanic market. 

Yet it’s too soon to write off this retailing pioneer. Indeed, Merrill Lynch analyst Olivia Tong sees sales growth resuming in 2015 and 2016, and also anticipates solid levels of cash flow generation. Avon currently posts around $300 million in annual free cash flow, though Tong sees that rising to $600 million by 2016, as the company’s legal bills shrink and better pricing leads to firmer gross margins. Tong says Avon has “strong market positions in faster-growth emerging markets,” but adds that “the company’s turnaround is taking longer than we originally expected.”

Shares of Avon trade around 10 times projected 2016 free cash flow, a multiple that is far lower than many retailers’. The resolution of the company’s legal woes and a return to modest sales growth will lead investors to again focus on how inexpensive this stock has become.

Risks to Consider: These stocks are struggling in a strong market, and would likely continue to struggle if the markets encounter stiff headwinds this year.

Action to Take –> Of all of these slumping stocks, it is the two retailers that stand out for turnaround potential. Best Buy’s massive cost cuts set the stage for better stock action this year, while Avon’s upside may take longer to play out.

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