#-ad_banner-#When a company stumbles repeatedly, investors eventually throw in the towel and sell their shares. Paradoxically, that may be the very best time to consider such a stock. With few supporters and legions of detractors, the bad news is mostly priced in and any potential good news is heavily discounted.

Of course you need to identify the potential positive catalysts that are coming down the pike. And you need to see management take action, not simply issue empty promises. Bring these factors together and you may be looking at a great turnaround stock. I’ve found two such stocks that appear poised to finally move up from their multi-year lows. The potential six-to-12 month upside: 50% or more once these factors come into play.

Testing Icahn’s Patience
The first turnaround candidate ranks as one of Carl Icahn’s rare missteps. Last summer, his investment firm acquired 38.8 million shares of Hertz Global Holdings, Inc. (NYSE: HTZ) at an average price $28.48 a share. Soon after that major purchase, Hertz’s board announced that a seemingly minor set of accounting problems were actually quite extensive. 

Almost the entire management team was replaced, and in the fourth quarter of 2014, Icahn boosted his stake by another 34%, acquiring 13 million more shares at around $22.50 a share. His average purchase price of $27 a share is now roughly 40% underwater. Although shares are unlikely to generate a massive profit for Icahn any time soon, the path is now set for a rebound at least back to his average purchase price.

Hertz’s woes stemmed from a basic lack of financial controls. Several years’ worth of bad accounting has taken almost as long to sort out. When Hertz finally issued corrected financial statements in mid-July, covering results from 2011 to 2013, the company noted in an SEC filing that prior CEO Mark Frissora likely led the company’s finance department to blatantly misstate quarterly results.

Tague is now poised to deliver better news in coming quarters. First, the accounting clean-up will allow Hertz to proceed with a long-planned spin-off of the company’s equipment rental division. That transaction is expected to help Hertz to fund a $1 billion share buyback. (The buyback will get underway in the current quarter, well before that planned spin-off, which is slated for next spring.)

 Meanwhile, the deeply-rooted internal problems led Tague to closely scrutinize every aspect of the company’s operating structure. As a result, he has announced a set of far-reaching cost-cutting initiatives, which will remove $300 million of overhead. At the same time, he has moved quickly to rapidly upgrade Hertz’s global fleet of rental vehicles, which had grown very old by industry standards.

Detractors will say that the car rental industry is in trouble, as consumers increasingly utilize cutting edge car-for-hire firms such as Zipcar. That may be the case for millennials that are looking for wheels for a day trip. But long-distance travelers still need a car rental at the airport, and the volumes of car rentals in such locales is actually modestly rising in 2015, not shrinking. That has enabled Hertz to initiate a recent series of price increases.

Carl Icahn will update his holdings in coming weeks, and it will be interesting to see if he is boosting his stake, now that shares are even less expensive than before.

The GE Financial Unraveling
Roughly three months ago, my colleague Chris Walczak noted the decision by the General Electric Co. (NYSE: GE) to exit the financial services industry. That move comes a decade after the industrial titan unloaded its insurance arm, which was subsequently known as Genworth Financial, Inc. (NYSE: GNW).

Shares of Genworth have been on a roller coaster ever since and are currently in the investor doghouse. The company’s $3.6 billion market value compares to $15 billion in book value. That sharp price-to-book discount is the result of a series of disastrous management moves that led to write-downs in some divisions and operating losses in others.

Slowly, but surely, Genworth is cleaning up the mess. The company has already begun to unload some of its stake in an Australian mortgage subsidiary. And French insurer Axa is in talks to pay around 475 million euros for Genworth’s Lifestyle Protection Insurance subsidiary. Management has also floated the idea of taking the company private, which is quite logical in light of the extremely low price-to-book ratio.

Genworth will release quarterly results on August 4, at which time investors will get a much clearer read on the company’s turnaround efforts. If the results are solid, as was the case in Q1 when earnings per share beat the consensus forecast by nearly 20%, then shares are likely to stage a solid relief rally. Longer-term, a move back up to 80% of book value would translate into a 100% return for this beleaguered stock.

Risks To Consider: Turnarounds can take ample time to play out, and investors may not fully embrace shares until quarterly operational results are in peak form. For Hertz and Genworth, that may not happen until 2016.

Action To Take –> Whether it’s a massive share buyback (Hertz) or ongoing asset sales (Genworth) these stocks have catalysts to help them move higher. Both are deeply loathed right now, but their respective management teams have articulated clear-cut turnaround strategies. As long as they can execute those plans, investors are bound to re-visit these broken stocks.

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