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 when the market reacts to the upside.
Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.
An oil stock you can dig
Oil and gas exploration companies are currently the outcasts of Wall Street. Those that are focused on natural gas are facing high supplies and extremely low prices while refiners are dealing with low crack spreads and weak demand stemming from the warmer winter. Long story short, it hasn't been a pretty couple of months. But when pessimism is high, that's when great values like Hess (NYSE: HES ) emerge from the abyss.
Hess is huge, but it's not on many investors' radars since it often takes a backseat to larger, more visible exploration and production companies in the oil sector like Chevron. Hess' dividend yield of just 1% also detracts from investor interest, when Chevron is yielding 3.6%. Looking past the dividend, however, Hess has a lot it can offer shareholders at an extremely reasonable price.
Hess has diverse oil and gas assets across Northern Africa, Europe, Asia, and North America that totaled 1.57 billion barrels at the end of 2011. E&P is its primary income producer and was hurt only by the absence of a one-time gain made from the sale of its interest in the Snohvit Field in Norway last year. Really where Hess can offer big dividends is its natural gas operations, which are well-hedged against currently low prices, and its refining business, which should rebound from the warm winter. I'd love to see Hess' dividend grow, but at less than six times forward earnings, it's worth the addition to my CAPS portfolio right here.
That's right, another oil and natural gas company! This time I'm going to take a look at Gulfmark Offshore (NYSE: GLF ) and show you why this transporter of materials, supplies, equipment, and personnel is a veritable must-own at these levels.
The first thing that stands out with Gulfmark is how few publicly traded companies are actually engaged in transporting personnel to drilling rigs offshore. Outside of Bristow Group (NYSE: BRS ) , which I've highlighted positively before and is responsible for using helicopters to transport personnel to and from offshore rigs, Gulfmark maintains a good share of the personnel transportation market.
Second, even if low natural gas prices are curbing the spending habits of large E&P drillers, those same companies are attempting to make up for their margin hit by focusing more on oil. Many of those oil deposits are offshore, which should play right into Gulfmark's hands. Finally, even with utilization rates down in Gulfmark's seasonally weak first quarter, charter day rates were up by 5%. Pricing power is everything, and if Gulfmark can still command higher prices for its vessels, it's in great shape for the long term.
At just seven times forward earnings, I feel it's time to dig into Gulfmark Offshore.
Collect the whole set
If you're still undecided about oil stocks in general and wish there were an easier way to collect the whole set without breaking the bank, then say hello to the Market Vectors Oil Services ETF (NYSE: OIH ) .
ETFs, as long as you sniff out the right ones, are fantastic tools for diversifying your holdings while reducing the risk associated with owning individual companies. The Market Vectors Oil Services ETF owns 25 of the largest oil service companies, with Schlumberger, National Oilwell Varco, and Halliburton comprising its largest three holdings (about 39% combined). This fund gives you access to companies involved in fracking and rig maintenance, as well as drilling and shipping. About 72% of its holdings are based on U.S. oil service companies, with 85% of the companies in the fund being valued at more than $5 billion. Best of all, this all comes with a minimal net expense ratio of 0.35%. It's a relatively safe and smart way to play what should be a growing demand for oil.
If you haven't guessed by now, this week's theme is oil, oil, oil! As prices fall, emotional investors take over and whipsaw these stocks without truly putting their thinking caps on. As long as the U.S. avoids a deep recession, I don't foresee the demand for oil tapering off by much, which makes these three stocks very attractive investments.
I'm so confident that 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!