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.
Till death do us profit
Owning necessity stocks is one way to avoid being crippled by wild economic hiccups similar to the two we've been privy to since 2001. One such company whose products should realistically always be in demand is Matthews International (Nasdaq: MATW ) , a provider of cremation and memorialization products for cemeteries and funeral homes.
Matthews is the type of company you set in your portfolio and forget about for a very long time. Its growth rate will never be phenomenal, as the input costs for its products are almost always on the rise. However, there will always be a need for plaques, mausoleums, caskets and other ways of remembering our loved ones, and Matthews plays a big part in that. Currently valued near its lowest price-to-book and price-to-sales valuation in the past decade and yielding better than 1%, Matthews could help all shareholders rest easier at night.
[Insert weekly natural gas pick here]
You'd never think I was a fan of natural gas at these decade-low prices, would you? This week I want to take a closer look at Ultra Petroleum (NYSE: UPL ) , one of the nation's biggest natural gas producers.
Ultra Petroleum, like the rest of the natural gas sector, has decided to cut back on its production in order to hopefully reduce the surplus and raise natural gas prices. Unlike the rest of the sector, Ultra Petroleum boasts some of the lowest costs of production. Chesapeake Energy (NYSE: CHK ) boasts costs that are nearly three times as high as Ultra's. It's no surprise then why, as the United States' largest producer of natural gas, Chesapeake curtailed its daily production recently.
Despite the cutback, Ultra's forward P/E is still below its five-year trailing average, and its price-to-cash flow is near a decade low. In short, the company is cheap, and I feel that as natural gas prices rebound, it will be one of the first to benefit from a ramp-up in production.
Getting ready to heat up?
Sticking with our theme of necessity stocks, we have Modine Manufacturing (NYSE: MOD ) , which makes an array of heating and cooling systems used in the engines of cars and large industrial equipment.
As fellow Fool Dan Caplinger noted when he closely examined the company in February, Modine's results have benefited from strength in the industrial and farming sectors. Deere (NYSE: DE ) , one of Modine's customers, has seen sales boosted by a record year of spending by farmers in 2011. It recently reported an 11% rise in worldwide sales and a record $1.30 in EPS for the first quarter. It's for these reasons Modine was able to increase EPS by 50% in its third-quarter results.
On the flip side, currency weakness related to the euro and European economic softness tied to the United States' major car players, Ford and General Motors, caused the company to guide its forecast for fiscal 2012 lower. Despite these headwinds, I see a consistent need for Modine's products over the long term in both the industrial and consumer car sector. Valued at roughly 12 times 2012 earnings and eight times fiscal 2013, this could be a deal too hot to pass up.
Necessity stocks make the world go 'round. Whether or not the economy is booming, these three companies have the ability to weather a downturn while providing investors with a solid long-term outlook. I'm so confident these three names will bounce off their lows that I'm going to make a CAPScall of outperform on each one.
In the meantime, consider adding these potential winners to your free and personalized watchlist and get your own personal copy of our special report "The Motley Fool's Top Stock for 2012" to see which company our chief investment officer has dubbed the "Costco of Latin America." Best of all, this report is completely free, so don't miss out!
- Add Matthews International to My Watchlist.
- Add Ultra Petroleum to My Watchlist.
- Add Modine Manufacturing to My Watchlist.