3 Stocks Near 52-Week Lows Worth Buying
Oct 3rd 2011 1:09PM
Updated Oct 3rd 2011 3:12PM
Just as we examine companies each week that may be rising past their fair value, we can also find companies potentially trading at bargain prices. 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.
Pedal to the metal
I almost have to choke down this recommendation a bit because it's a company that I would normally avoid, but Alcoa (NYS: AA) is finally trading at an attractive valuation. As the world's largest producer of aluminum, Alcoa's fortunes are inextricably linked to the health of the global economy. Because of Greece worries and significantly slower-than-expected growth in the U.S., many have Alcoa pegged for rough times ahead. I, on the other hand, see light at the end of the tunnel.
Even with reduced profit forecasts, investors looking for metals exposure have to be intrigued by Alcoa at 65% of book value and just 7 times forward earnings. Also consider that Alcoa's gross margin is much higher than that of its closest rival Aluminum Corporation of China (NYS: ACH) and it trades at a forward P/E that's half that of Aluminum Corp. While it will take global growth to drive sales, I'm not sure Alcoa is going to get much cheaper.
If you asked shareholders of engineering and construction management company Fluor (NYS: FLR) , they'd say Alcoa shareholders have it easy. Not only does Fluor need a strong global economy to increase sales, but it also relies heavily on government contracts. Considering that the U.S. government just went through the painstaking process of raising the debt ceiling, I can understand where the pessimism is coming from. But, I also feel Fluor has more than paid its penance.
Since its highs earlier in the year, Fluor has fallen from a forward P/E of nearly 24 to just 13. The company is now trading at a price-to-cash-flow ratio near its lowest levels since 2001! With speculation swirling that the U.S. government will once again need to spur the economy through a potential jobs package, companies like Fluor shouldn't be counted out. Don't forget that Fluor also gives you a 1.1% yield while you wait for investors to come to their senses.
1.21 jiggawatts? It can be done!
I could just as easily include a new solar stock each week in this column -- and today I'm going to do just that with SunPower (NAS: SPWRA) (NAS: SPWRB) . Last week Foolish colleague Travis Hoium hit the nail on the head when he declared SunPower his favorite solar play. While I may not share his enthusiasm as my favorite play, the company's energy efficiency is far and away higher than all of its peers, offering it a significant competitive advantage.
As Travis expounded further, SunPower's cost-per-watt might be one of the highest in the industry, but this also leaves room for a large amount of improvement. It's not as if SunPower has been struggling, either, despite its high cost-per-watt. The company is currently valued at just six times forward earnings and half of its book value, consistent with other solar companies I've highlighted in recent weeks, JA Solar (NAS: JASO) and Trina Solar (NYS: TSL) . If you aren't ready to pull the trigger yet on solar, consider at least getting these companies on your watchlist.
Market panic is on the rise and there are deals to be had. Keep your eyes peeled for companies trading at or below book value that have stronger earnings potential than their peers and you should be in good shape when the market finally does find its footing.
What's your take -- do these fallen angels deserve a second chance? Share your thoughts in the comments section below and consider adding Alcoa, Fluor, and SunPower to your free and personalized watchlist to keep up on the latest news affecting each company.
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. 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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