Just as we examine companies each week that may be rising past their fair value, we can also find companies potentially trading at a bargain price. While many investors would rather have nothing to do with companies tipping the scales at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to the downside, just as we often do to the upside.
Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.
They pay cash, which is just as good as money!
Gilbert Gottfried may have come and gone, but the Aflac (NYS: AFL) duck continues to bring in customers by the handful. But you wouldn't be able to tell that by looking at its stock recently. Aflac has been busy deleveraging its portfolio from risky transactions in case the economy does take a drastic turn for the worse, but the moves led to $480 million in after-tax realized investment losses in the second quarter. Allow me, however, to be the first one to say, "Relax!"
Aflac is a dividend champion that has raised or maintained its dividend since 1982 and has grown that dividend annually at 20% over the past five years. Unlike Allstate (NYS: ALL) and Progressive (NYS: PGR) , which are just beginning the arduous task of calculating their losses related to Hurricane Irene, Aflac deals with supplemental health and life insurance, leaving it unaffected by most weather disasters. To top off its already impressive 3.4% dividend, Aflac also announced the resumption of its share buyback program. Income-seeking investors should really give Aflac another look.
The patent cliff is a dangerous line to cross, as shareholders of Warner Chilcott (NAS: WCRX) have recently discovered. The company lost its patent exclusivity in Western Europe on its blockbuster osteoporosis drug Actonel this year, and sales have been moving considerably lower. Despite this, the valuation here could be too good to pass up.
Even with the Actonel setback, Warner Chilcott was still able to offer revenue guidance of $2.7 billion to $2.8 billion, with earnings in a range of $3.70 to $3.80 per share. Based on its current price, Warner Chilcott is valued at an earnings multiple of less than 5! I can't say I'm completely thrilled by the company's $4 billion in debt, but it still has an impressive pipeline beyond Actonel to take up the slack. As the company enacts its plan to reduce expenses over the next few quarters, it's likely revenue may stagnate, but profits should remain consistent. At a mid-single-digit P/E, this could be the perfect pill to pop into your portfolio.
Buy one, get one, half off!
As I stated last week, I'm all about dipping my toes into the retail sector and wading in rather than diving in full force. This week I think American Eagle Outfitters (NYS: AEO) could deserve some love.
Rivals Aeropostale (NYS: ARO) and Pacific Sunwear (NAS: PSUN) have seen earnings slashed recently. American Eagle, on the other hand, lowered its earnings forecast enough to earn the ire of some Wall Street analysts, but not enough to cripple its earnings power. This isn't to say that American Eagle is going to solve its inventory glut overnight or that margins are going to miraculously improve, but the company is solidly profitable, pays out an amazing 4.2% dividend, and has more than $500 million in cash on its balance sheet . You could do a lot worse in the apparel sector.
This week not only demonstrates that fashionable, pill-popping ducks might deserve a spot in your portfolio, but that values abound in the market after the recent sell-off. Feel free to dip your toes in from time to time or you might miss out on the next rally.
What's your take on these three companies? Are these fallen angels worth a second chance? Share your thoughts in the comments section below and consider adding Aflac, Warner Chilcott, and American Eagle Outfitters to your watchlist.
At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong The Motley Fool owns shares of Aeropostale and Aflac. Motley Fool newsletter services have recommended buying shares of Aflac. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's always on the lookout for a good deal.
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