These 3 welterweight stocks are fighting their way back to success – should you buy?

As small companies, it seems everything is against you. Volatile share prices, low levels of funding and shareholders who take flight at a scent of missed guidance or lower-than-expected dividend payouts.

However, the rewards for these welterweight companies fighting through the tough times can be immense. You see the thing is, a small welterweight fighter isn’t like a heavyweight – such as National Australia Bank Ltd (ASX: NAB) – who takes a hit and runs out of stamina in the first or second round because it carries more baggage than it can handle.

A good welterweight company springs back to its feet and has the stamina and mental toughness to keep going again and again. That’s why when your company falls to its knees, you shouldn’t be so rash in writing it off and running for the hills.

For example, after the government said no to fees on small interest bearing loans, Cash Converters International Ltd’s (ASX: CCV) profits took a dive and its share price fell from around $1.40 to just $0.75 within days. Now it’s pushing back towards a $1.00 per share and could easily close out 2014 as a real underdog success story. I know I’m betting on it.

Like Cash Converters, Collins Foods Limited (ASX: CKF) disappointed the market when it announced it expected only 5% earnings growth in 2014. Its share price took a huge hit and fell over 15% in one day’s trading in February but since then, its price has rallied back to $2.00 per share from a low of $1.83. It seems long-term shareholders took the opportunity to pounce on this beaten-down stock because they thought it would get back up.

Lastly, months after declaring a stellar increase in revenues, Yellow Brick Road Holdings Ltd (ASX: YBR) share price was beaten and bruised to a point where even faithful shareholders felt it was out of the game. However, good things don’t stay down for long and after updating the market with the possibility of acquisitions and share buybacks the stock jumped more than 20%.

Foolish takeaway

Warren Buffett, one of the world’s most successful investors, has two rules when it comes to buying and selling beaten-down stocks. The first rule is: don’t lose money. The second rule is: don’t forget rule number one. It’s a simple and easy strategy for success because if you do your research and have faith in what you know is a good company, even if it suffers the biggest of blows, it’ll always come back to fight another day. These three welterweight companies are testament to his rules of investing. Shareholders would be wise not to forget them.

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Motley Fool Contributor Owen Raszkiewicz owns shares in Cash Converters and Yellow Brick Road. 

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