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.
Fast food, faster profits
I've made it pretty clear recently that I'm not a fan of McDonald's (NYSE: MCD ) in 2012. Much of my dislike for the company stems from its lofty valuation relative to 10 years ago and the fact that its presence in Europe and its reliance on the euro could easily translate into weakness in the blink of an eye. That said, one area I'm still very bullish on for McDonald's is Latin America, which is why Arcos Dorados (NYSE: ARCO ) looks like an incredibly smart play.
Arcos is the world's largest franchiser of McDonald's restaurants, and the largest restaurant chain in Latin America. In its recently reported full-year results, Arcos highlighted a 17.7% jump in sales in constant currency over last year, while same-store sales bolted 13.7% higher. Net income also rose 9% as the chain opened an additional 101 restaurants. With undeniable worldwide brand recognition and double-digit same-store sales growth, I don't see how you can go wrong with these golden arches.
Despite having a name that sounds like it should have its own cheerleading squad, Primero Mining (NYSE: PPP ) , the darling of the Fool's own precious metals guru Christopher Barker, looks prime for a rebound.
Based on this junior miner's full-year results back in January, it appears things are moving along at a steady pace. Gold equivalent production inched up in 2011, but was hampered by slightly lower-than-expected ore grades. The key to Primero's future growth is its low cost structure. In 2011 the company's costs "spiked" from 2010, but even then, with by-product gains added in, it amounted to just $384/ounce. This year Primero is predicting those costs will drop to $310-$340 per ounce, leaving a lot of room for great margins if gold remains around $1,650. At less than seven times trailing-12-month earnings and about half of book value, Primero offers an exceptional value in a mining sector that is quickly becoming my go-to for value.
Decade-low natural gas prices haven't been friendly to big gas players in the energy industry. Even worse, it really hasn't mattered whether the company is based in the United States or elsewhere. Canada's EnCana (NYSE: ECA ) recently sold 40% of its undeveloped natural gas reserves in British Columbia for $2.9 billion and announced it would reduce spending by 37% in 2012 due to lower natural gas prices. Still, bargains with incredible dividends remain.
Sticking with our Canada-based theme, Enerplus Resources (NYSE: ERF ) is one of those very bargains and it does indeed have an almost ATM-like dividend. Enerplus is one of those rare companies that pays out a monthly stipend and is currently yielding a mouthwatering 9.3%. Although there's some initial risk this dividend could drop a tiny bit in the future, with production cuts firmly in place that should allow it to maintain pricing and keep expenses under control, there doesn't seem to be any immediate pressure on its payout. It isn't the cheapest company at 24 times forward earnings, but the dividend payback is among the highest in the industry.
This week was all about near-guaranteed values. Arcos is growing like wildfire in Latin America, Primero is a bargain at just half of book value, and Enerplus is a cash machine for income-seeking investors. 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 Arcos Dorados to My Watchlist.
- Add Primero Mining to My Watchlist.
- Add Enerplus Resources to My Watchlist.