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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).

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