Four Stocks Set to Spring Back to Life

Following every steep economic decline in the last 200 years is a symmetrical rebound -- robust growth always follows a severe decline. Given the chiseled-to-the-bone operating expense structures prevalent in corporate America, a significant economic pickup will cause earnings to explode and stocks to soar.

But maybe this time it will be different. Maybe we'll see an historic anomaly: sluggish growth following a dramatic decline. With the right stock portfolio, investors can still profit handsomely in such an economic scenario. Many companies have sized operations to be profitable in a moribund economy. In some cases, a tiny uptick in sales will result in profitability that approaches peak levels.

Below, I'll recommend four stocks that will reap gains for investors in a sluggish economy. I touted the first three in a column one year ago, back in the ditzy days of the mega-bear market, when I observed, "scores of stocks have been pulverized to levels so low that, well, you need a damn magnifying glass to see their stock quote."

That's where the action is in this cycle -- in pulverized stocks -- not in stocks undamaged by the mega-bear. In the same column, I urged readers to avoid Kellogg (K - commentary - Trade Now) at $50 per share just for that reason, because it "didn't get scuffed in the mega-bear market. So it's reasonable to expect it will be a big, fat snore in the retracement phase." Indeed, Kellogg's 4% gain since that column is snoresville, especially when compared with a 16% S&P 500 return for the same period.

Office Depot (ODP - commentary - Trade Now): This stock is up 106% since I recommended it a year ago, to $6.40 per share, and there is plenty of profit still to harvest from owning this stock. For now, I'll stay with my forecast from a year ago: "You should expect a rebound to the $10-$12 area. With a better economy over the next three to five years, Office Depot has an excellent chance to get back over $20 per share." By the way, the risk of owning this stock has greatly diminished. Management has right-sized the operating structure to be profitable in a trough environment, and with $693 million in cash, the balance sheet provides plenty of protection for investors.

---

At time of publication, Alsin and/or ACM was long ODP, MTW, LM and NCR, although holdings can change at any time.

Arne Alsin is the founder and principal of Alsin Capital Management, a California-based investment adviser. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback; click here to send him an email.