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Navistar International Corp (NAV), Pandora Media Inc (P), The Gap Inc. (GPS): Should You Bet on These Turnaround Stories?

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Companies and businesses are sometimes written off too quickly and afterwards make dramatic turnarounds; sometimes the returns are often super-normal when the company’s stock soars as new (or existing) management turns things around.

U.S. truckmaker Navistar International Corp (NYSE:NAV), Internet radio service provider Pandora Media Inc (NYSE:P) and The Gap Inc. (NYSE:GPS) are among such turnarounds that should be watched closely by investors seeking exceptionally good returns.

EPA kills Navistar?

Navistar International Corp (NYSE:NAV)Navistar is a producer of commercial and military trucks, buses, and diesel engines. The stock was trading at $24 at the start of the month; however, fast forward a week and the price has advanced more than 40% with a market price of $34. To put things into perspective, the stock’s 52 week range, between $18 – $43, does not appear to be of a steady performer.

The company lost investors’ confidence big time when the U.S. Environmental Protection Agency refused to approve its new diesel engine in last August. In a marked departure to what the rest of the industry was doing, Navistar International Corp (NYSE:NAV) was trying to reduce emissions of nitrogen oxide without using the additive urea.

The company has now abandoned that plan, and instead it is developing a new model that uses emission controls more in line with industry standards. However, it is paying a hefty fine of $3,744 for every engine that does not meet current emissions standards. As history tells us, order books of companies with questionable prospects go for a toss and Navistar was no exception. As a result, the stock price of this iconic manufacturer sunk to new lows last year.

However, there appears to be a transformation taking place lately. In the latest quarter, the company reported that its net loss was reduced to $123 million from $153 million. During the quarter, it incurred $10 million in non-conformance penalty charges on engines. Although the loss from continuing operations before income taxes stood at $84 million, it was lower than the year ago figure of $207 million.

However, top line growth still remains elusive as revenue declined 13% to $2.6 billion. The financial performance, despite the lower top line, is indicative of the efforts Navistar International Corp (NYSE:NAV) is making in controlling costs. In addition, what also worked in pushing the stock up was the appointment of its chief operating officer to CEO indicating a full-time expert will now be leading the rescue mission.

Pandora Media Inc (NYSE:P):Buy on the bad news?

Similarly, Pandora stock was up at one point more than 15% in last Friday’s trading session after the company reported financial results which exceeded market expectations. Although the net loss widened to $14.6 million from $8.18 million, excluding exceptional items it came ahead of analysts’ consensus.

Revenue growth of 54% also cheered investors and so did the announcement that chief executive Joseph Kennedy was stepping down. As a result, Piper Jaffray upgraded the stock to overweight from neutral while many other brokerages increased their price targets.

The Gap Inc. (NYSE:GPS) cool again?

Specialty apparel major Gap also reported encouraging results, effectively continuing a turnaround that included a change in its top management. In the latest quarter, profits grew 61% to $351 million as revenue jumped 10.5% to $4.7 billion.

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