Top 10 Turnarounds for 2006, Part 1

This column was originally published on RealMoney on Dec. 1 at 7:01 a.m. EST. It's being republished as a bonus for TheStreet.com readers.

The first two installments of my Top 10 Turnarounds list, posted at the end of 2000 and 2001, were full of good stock ideas. Between the two columns, there were eight multi-bagger ideas, three companies that were acquired at healthy premiums and only two ideas that lagged the S&P 500.

Unlike the first two lists, though, this one is unlikely to have nine of its Top 10 Turnarounds outperform. That's because the competition, the S&P 500 index, is much more attractively priced. But while the relative performance may not be as good with the current list of turnarounds, I believe it has the most long-term upside potential of the three lists.

In this, the first of a two-part column, I'll highlight five of the Top 10 Turnarounds for 2006. Look for part two this time next week.

Molson Coors

Since the No. 1 Canadian brewer, Molson, and Adolph Coors merged early this year, the new stock, Molson Coors(TAP), has languished between $60 and $80 per share. Now trading at $66, this stock is very low-risk, with an impressive two- to three-year upside valuation potential of more than $100 per share.

The company is up against a difficult macro backdrop, with sluggish beer demand, but there are a lot of operational levers for management to pull to unlock value. Restructuring and right-sizing are going to be the name of the game over the next few years, as merger-related synergies are realized and cost-savings plans are implemented. There is a good chance that my valuation target will be too low, especially if current operating margins of 11.5% eventually are taken to 15%, a level that this operating structure can easily support.

DreamWorks Animation

Since trading in the low $40s after its IPO last year, DreamWorks Animation(DWA) has taken a hit and now trades around $25 per share. My valuation target is in the mid-$40s by 2007. Even at a mid-$40s quote, the company would be valued at a significant discount to key competitor Pixar(PIXR).