Ready to rally? These 3 stocks could be about to bounce

Sometimes it doesn’t take too much good news for an underperforming stock to rally.

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The pessimist might consider the following three stocks down-and-out. The optimist could be inclined to declare them cheap. However the realist will judge each of the companies on their future potential and importantly determine a conservative valuation for all three.

Bradken Limited (ASX: BKN) certainly hasn’t escaped the general sell-off of companies exposed to the mining services sector, with the share price losing 25% over the past 12 months. Despite the poor share price performance and weak outlook for the mining services sector in general, there are reasons to view Bradken positively.

Firstly, the company managed to beat its guidance for the first half of FY 2014. Secondly, the board still declared a 15 cents interim dividend – if annualised this places the stock on a dividend yield of 6.7%. Thirdly, management provided full year guidance for EBITDA of $180 million, implying a stronger second half than first half.

Fantastic Holdings Limited (ASX: FAN) is a manufacturer and retailer of furniture and owns brands including Fantastic Furniture, Plush and Dare Gallery. Like much of the wider retail sector, Fantastic has struggled in the past few years. The stock is out-of-favour and the share price has fallen 40% in the past 12 months. However, with the business exposed to the later stages of the housing cycle – it’s not until a home is built and it’s time to move in that people buy a new sofa – an uptick for Fantastic might be approaching.

Amongst the very worst performing constituents of the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) in March was Ten Network Holdings Limited (ASX: TEN). Ten’s poor share price performance certainly isn’t without some justification with the most recently published viewer ratings showing the television network is a long way behind its competitors Nine Entertainment Co Holdings Ltd (ASX: NEC) and Seven West Media Ltd (ASX: SWM).

Despite these negatives, it should be remembered that ratings come and go. Poor programming can be rectified and likewise a great programming line-up can in time become a poor one. Due to asset sales and capital raisings, Ten’s balance sheet is strong. Things probably can’t get much worse for Ten, which arguably stacks the odds of doing better in the company’s favour.

Foolish takeaway

While pin-pointing the timing of a bounce or re-rating is near impossible, determining that one should occur at some point in the future is achievable. By owning a portfolio of these types of opportunities investors can achieve market-beating results.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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