3 Stocks Near 52-Week Lows Worth Buying

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.

Not playing around anymore
The video and online gaming sector is highly competitive, and pricing power stinks for the most part. As gaming shifts further from traditional consoles onto mobile and PC platforms, bricks-and-mortar retailer GameStop (NYSE: GME  ) has taken it on the chin. However, we've reached the point where GameStop's valuation has become too enticing to ignore.

Why invest in GameStop if sales are stagnant? First, the company understands the shift toward online gaming and now distributes PC games in addition to traditional console games and could push further into the digital market. Second, the ability to trade in used video games for credit gives the company a chance to hook customers for life and provides high-margin added growth. Finally, it's still very profitable. By trimming the fat and operating within its means, GameStop has accrued $329 million in cash, has zero debt, and has averaged $405 million in free cash flow over the past five years.

All of this adds up to a company that has become an income investor's dream with the initiation of a $0.15 quarterly dividend in February. Its current yield of 3.6% places it among the tech sector's elite yielders, and its payout ratio remains extremely subdued at just 19% of expected 2012 EPS.

Share-price accelerometer
By the looks of STMicroelectronics (NYSE: STM  ) , you'd have absolutely no clue that its motion-sensing three-axis gyroscope and accelerometer are a part of the Apple (Nasdaq: AAPL  ) iPhone 4 and 4S, and the iPad 2. You'd think that being part of something as large as the iPhone, which sold 35 million units last quarter, would be enough to move this stock higher, but that just hasn't been the case -- although it should be!

STMicro is cheap, but for two primary reasons. First, it's highly dependent on economic cycles to drive its growth. What that means is it's not a stock you want to hang on to for 10 years at a time. It's primarily a good one-to-three-year buy-and-hold when the chip sector is cycling higher. Secondly -- and this builds on reason one -- sales have been stagnant since 2006.

In spite of this, STMicro has strong ties to Apple and is one of the leading suppliers of microelectromechanical systems, or MEMS, in the world. That niche, combined with its $770 million in net cash, its greater-than-7% dividend yield, and the fact that it's valued at just 55% of its book value, makes it a very intriguing value play.

Pedal to the metal
You'd best sit down for this one, because I'm about to recommend... drum roll, please... a U.S. car company! The bankruptcy of General Motors (NYSE: GM  ) still doesn't sit well with many Americans, but it's really hard to ignore just how much better it looks when compared to Ford (NYSE: F  ) nowadays.

When GM declared super-duper bankruptcy in 2009, the company had more than $90 billion in net debt. Now, just a few short years later, GM has a net cash position of $17.2 billion (and a market value of only $30.4 billion). Ford, on other hand, declined federal assistance during the downturn, but is still crippled under $77.4 billion in net debt.

There are also recent growth figures that show GM is performing considerably better than Ford. In June, GM's total unit sales rose by 15.5% compared to Ford's, which rose 7.1%. Granted, Ford has turned in a higher aggregate unit-sales increase year to date, but that comparison could be switching and swaying in favor of GM now that it's worked out the "kinks" with the Chevy Volt. With the stock at less than five times forward earnings, I'm going to give GM another chance, but I'm putting it on a very short leash.

Foolish roundup
Another week of big names hovering near new lows despite the market's overall resistance to negative news. All three offer deeply discounted value, are well-known names within their niche, have strong net cash positions, and (minus GM) pay a premium dividend (though give GM a few more years and it will be there, too).

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." Find out 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!

Also, read our latest Fool analysis on Ford and Apple. Our premium reports give you a full year of updates to keep you apprised of what's happening in the auto and hardware sectors. Find out how Ford could beat GM and whether Apple will keep dominating by reading these reports today.

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, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of GameStop, Apple, Ford, and Costco. Motley Fool newsletter services have recommended buying shares of Apple, General Motors, Ford, and Costco, as well as writing covered calls on GameStop, creating a bull call spread in Apple, and creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


Read/Post Comments (6) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 17, 2012, at 11:12 AM, JohnCLeven wrote:

    GM’s stock price is $19.37. GM has $10.50 PER SHARE in net cash. That means the business is really selling for $8.87 per share. GM earned 4.58 per share in 2011. That’s a P/E of 1.93. THAT'S RIDICULOUS!

  • Report this Comment On July 17, 2012, at 12:00 PM, Smalls62 wrote:

    <<Ford, on other hand, declined federal assistance during the downturn, but is still crippled under $77.4 billion in net debt.>> Apparently you failed to consider there's a finance arm of which finance companies have much different D/E metrics than a pure automaker who sold off their fincance division (Ally) which also went bankrupt. Now GM is interested in the foreign assets of the Ally skeleton. If you want to compare financial positions then look no further than tangible book. Pull out intangibles and goodwill assets for GM and you have about 75 cents/share in whopping book value. Ford is high $4's.

    <<In June, GM's total unit sales rose by 15.5% compared to Ford's, which rose 7.1%.>> Ford has cited production limitations for a couple months and just added third shifts to several plants within the past 60 days. Ford had quoted a 104% U.S. capacity rate as they paid overtime to workers. Ford will have 8, yes 8, models this fall with +40MPG which is more than ANY other automaker. Japs (Toyoda and HMC) have seen their +30 year market niche of fuel economy evaporate as Ford has overhauled their lineup the past handful of years. Until MyTouch issues were encountered, Ford had jumped to the top in challenging Toyada on quality. MyTouch just a headache to work out when one pioneers the mobility/connectivity in the automobile. Ford will rebound in quality rankings with MYTouch kinks being worked out. Both GM and F are both selling at a discount but your reasoning for choosing GM over F is flawed IMO. Respectfully, Smalls

  • Report this Comment On July 17, 2012, at 1:12 PM, mistacy wrote:

    "The bankruptcy of General Motors (NYSE: GM ) still doesn't sit well with many Americans, but it's really hard to ignore just how much better it looks when compared to Ford (NYSE: F ) nowadays."

    What kind of substance are you adding to your diet to come up with such statement?

  • Report this Comment On July 17, 2012, at 1:41 PM, TMFMarlowe wrote:

    Sean, you've mixed up the numbers for F's finance arm with its automotive business (a common error). Its actual debt -- what Ford (and GM) call "automotive debt" -- was $13.7B as of the end of Q1, and it's unlikely to have changed much since.

    http://www.fool.com/investing/general/2012/04/27/a-strong-qu...

    I own both F and GM. For what it's worth, I think Ford's in better shape, but GM might have more upside.

    John Rosevear

  • Report this Comment On July 17, 2012, at 6:23 PM, TrackUltraLong wrote:

    TMFMarlowe (John),

    I don't doubt your figures are correct and the addition of the finance company does completely "mess up" the side-by-side comparison. But when hook comes to crook I'd say GM's restructuring versus Ford's lack of restructuring (and by restructuring I mean bankruptcy filing) still puts Ford at a significant disadvantage to GM.

    Either way, I always appreciate the clarification John.

    Sean

  • Report this Comment On July 17, 2012, at 11:26 PM, neamakri wrote:

    okay, here's my two cents...

    GM is running business just like before the bailout ~ they want to sell Cadillacs for $50K plus at low volume and high margin. If you don't believe it, see what list price is for a Volt.

    Guess what, if I were in the 1% bracket, I would buy a BMW 7-series AMG. With more money, a Murcielago. My brother-in-law has plenty of money and he loves Lexus; he is getting delivery on his third new one.

    Here's the bottom line. When you buy a GM car you are assured that GM squeezed the most profit from you. When you buy a (Honda, Toyota, etc.) you get the most quality for your money. Period.

    By the way, my Honda Accord gets 28MPG going to work...

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1946452, ~/Articles/ArticleHandler.aspx, 12/20/2014 10:31:00 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement