Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Navistar International Corp (NAV), Century Aluminum Co (CENX), American Axle & Manufact. Holdings, Inc. (AXL): Should You Bet On These Turnaround Stories?

Navistar International Corp (NYSE:NAV)Editor’s Note: American Axle (NYSE:AXL) does not have a debt free balance sheet, this version has been corrected to reflect this fact. Motley Fool apologizes for the error.

Shares of companies showing remarkable turnaround or even hints of it are often the subject of brisk advances. Navistar International Corp (NYSE:NAV)Century Aluminum Co (NASDAQ:CENX), and American Axle & Manufact. Holdings, Inc. (NYSE:AXL) are players expected to show just that, and the market seems to be buying this story. Shares of all three companies are up over 15% in just the past thirty days. So, should you believe that the rally will continue?

After ramming the truck into a wall, Navistar is recovering

is a manufacturer of international brand commercial trucks: IC Bus brand buses and MaxxForce brand diesel engines. Investors may not think of the mundane trucking business as one where companies have much scope of innovation. However, Navistar International Corp (NYSE:NAV) went on to prove otherwise with a new engine technology called exhaust gas recirculation (EGR) to meet new and stricter emissions norms.

It was in 2007 that these requirements were to be phased in, and the world was betting on a competing ‘selective catalytic reduction’ (SCR) technology, which Navistar International Corp (NYSE:NAV) derided. What followed was stuck development and sales of non-compliant engines and trucks until 2010, when the requirements came in full force. This resulted in heavy penalties for Navistar International Corp (NYSE:NAV), crimping the company’s finances and allegedly bringing it closer to bankruptcy. It took quite awhile for the company to realize its mistake, but lately it has abandoned plans and is now sourcing SCR engines from a European producer.

Navistar International Corp (NYSE:NAV) shares were battered, but are recovering now, as it becomes increasingly obvious that the company’s finances are set to change for good. Shares have gained 31% over the last quarter, but are still nowhere close to the previous highs. Analysts are also bullish about the company, which is reflected in generally positive recommendations for the stock. The company trades at a forward PE multiple of 1.

The improvement in finances is already visible in the numbers presented for the quarter that ended in March. Revenue suffered during the quarter, for obvious reasons, but the company demonstrated a firmer grip on costs, indicated in a reduced net loss of $123 million. This is lower that the previous year, as well as the previous quarter.

The case for Century

California-based aluminum producer, Century Aluminum Co (NASDAQ:CENX), is another player in this league. The stock is down nearly 6% on an annual basis, as the markets attached heavy discounts on material stocks. Given the carnage in metal prices last year, this was justified, too. However, the situation is improving as companies learn ways to deal with lower selling prices. In the first quarter of this year, Century Aluminum reported revenue of $321 million, marginally lower than the $326 million in the same period a year ago, but it was the bottom line that stole the show. Profits stood at $8.2 million during the latest three months, a complete contrast to a loss of $4.4 million in 1Q12.

The market seems to like the story, sending the stock up more than 20% in the last month. The stock still trades at a forward price earnings multiple of 15, and at a 22% discount to its book value of $11 per share.

Auto again

Another stock related to the automotive industry that’s showing fresh signs that the worst is behind is American Axle & Manufact. Holdings, Inc. (NYSE:AXL). The company is a producer of drive line and drive train systems, and related components and chassis modules for the automotive industry. It counts several global automakers as its clients. The stock has gained more than 22% over the last quarter, as investors came to realize the company is undervalued.

In the most recent quarter, the company reported a sharp drop in profits, but revenue increased, beating the Street expectations. As markets were already expecting lower profits, this did not come as a surprise, but revenue of $755.6 million topped mean analyst expectations of $750 million. The market has taken the results positively, as continued traction in revenue growth is likely to result in better profits in quarters to come.

Foolish bottom line

Investors have rightfully bought up shares of these three companies, as they have shown signs of turning around. Despite the recent rally in share prices, all three companies trade at relatively cheap valuations, which means there could be more upside ahead.

The article Should You Bet On These Turnaround Stories? originally appeared on and is written by Jacob Wolinsky.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.