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.

Time for an Obamacare bump
The Patient Protection and Affordable Care Act has plenty of investors skittish about investing in the health care sector. There are countless questions as to how insurance costs will be affected and exactly what that might do to small business growth. One thing for certain, at least as I see it, is that Cardinal Health (NYSE: CAH  ) stands to benefit in a big way.

One major reason Cardinal could be a great buy now is the health care insurance industry's emphasis on cutting costs. Insurers have been encouraging the development of Accountable Care Organizations in order to pool physicians and patients together to keep costs down. One way these ACOs will deal with the rising costs of health care is by increasing the amount of generic drugs used. Cardinal, which distributes branded and generic drugs, could be a big beneficiary. Much like the multiple discussions I've had surrounding Teva Pharmaceutical (Nasdaq: TEVA  ) , a large generic drug manufacturer, the margins and demand associated with generics are much higher. When Obamacare is enacted in 2014, I'd be surprised not to see an influx in generic demand within the first few months.

Cardinal also boasts a very modest payout ratio of just 29%. Even with the company's lackluster EPS forecast of $3.35-$3.50, it could easily boost its dividend by 30%-50% and still have very sustainable cash flow with which to seek future acquisitions. For now, I'll happily take a 2.4% yield, though I expect it to go much higher.

A wireless double-whammy
USA Mobility
(Nasdaq: USMO  ) shareholders would probably like to pull an ostrich and hide their heads in a hole until the worst is over. The company, which provides messaging, voice, and data services to large enterprises, the health care sector, and the government, has dealt with reduced spending from the government and a cutback from big telecom providers in terms of mainline infrastructure spending. The result has been a steady decline in subscribers and falling average revenue per user.

Today, I'm going to go against the grain (as I typically avoid companies with falling ARPU) and suggest that USA Mobility may be too good of a deal to pass up for income investors and for its peers. First, there's that delectable dividend of 4.6% that's right on par with industry giants AT&T and Verizon. Also, USA Mobility is debt-free and sporting $41 million in cash. Having recently reinstated its share buyback program, USA Mobility is also angling to make strategic purchases for its strong Amcom software business, whose backlog rose nearly $5 million from last year.

At a market value around $250 million and with consistently positive cash flow, USA Mobility's peers could easily swoop in to nab the companies growing software business and perhaps better utilize its health care industry wireless solutions tie-ins.

The market-maker you should really consider
Following the debacle earlier this month whereby a software glitch at Knight Capital Group (NYSE: KCG  ) generated a loss of $270 million after tax -- and possible more when all is said and done -- in just 45 minutes, suggesting a market-maker and brokerage service provider as a buy probably isn't going to sit well with many of you. However, I feel you'd be doing yourself a disservice by not giving Interactive Brokers (Nasdaq: IBKR  ) a serious look.

Truthfully, July wasn't a great month. Most of Interactive's metrics, including overall trade volume and options contracts, were down, but much of that is to be expected in the summer, and with volatility being at its lowest levels in five years. Interactive did grow its total customer accounts by 13% from the previous month and 1% year over year. Personally, I see this as the most defining buy factor as an increase in volatility will bring trading volume back to Interactive's accounts. It also shows how well-respected IB is among its brokerage peers.

In order to fully bounce off its lows, Interactive is going to need a better performance from its market-making segment than it received last quarter, but Knight's miscues should help its cause and boost its routing volumes, at least for the time being. Being well-capitalized and trading at just 10.5 times forward earnings, it's a long-term bet on an increase in trading volumes and order routing from both the consumer and institutional side of the business.

Foolish roundup
This week's trend is all about looking for the light beyond the clouds. All three companies this week are suffering growing pains, but each offers notable bonuses, including dividends and historical track records, that would indicate a bottom is near.

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!

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 Costco. Motley Fool newsletter services have recommended buying shares of Interactive Brokers and Costco. 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 (1) | Recommend This Article (4)

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 August 23, 2012, at 12:22 AM, MHedgeFundTrader wrote:

    While in Zermatt, Switzerland recently, I took the opportunity to undergo my annual physical. Over the years, I have discovered that American doctors are so paranoid about getting sued that I can never get a straight answer about anything, so I do all of my physicals abroad.

    I like visiting Dr. Christian because he is cut from the same cloth as I. He is a small wiry guy without an ounce of fat, and keeps his hair tied behind in a ponytail. Nothing like treating your patients through example. He has served as the team doctor on several Himalayan expeditions, reaching the incredible altitude of 25,000 feet without oxygen. He includes Mount McKinley and Aconcagua on his resume.

    He gave me the good news: I had blood pressure of 110/70 and a resting pulse rate of 50. This was at an altitude of 5,500 feet, which always elevates one’s blood pressure. The bottom line was that I had the heart of a teenaged Olympic athlete. He told me that whatever I was doing, to keep on doing it. I said that would be strapping on a 60 pound backpack and climbing the 1,500 foot mountain in my backyard every night after work. He answered that would explain everything.

    Dr. Christian usually allocates extra time for patients my age to deliver them bad news. That was unnecessary in my case. So we killed time trading notes on our favorite climbs.

    I also grilled him on the state of the Swiss medical system. He complained that it was going downhill, but was nowhere near as bad as in the US, where his brother practices medicine. Everyone here gets medical care after paying a small premium. His liability insurance was only $3,000 a year, compared to $100,000 in the US. The only malpractice suits in Switzerland are brought by Americans, and they always lose.

    The main reason medical costs were so low is that the people of Switzerland were so much healthier. Walking around the streets here, most people look like they are triathletes. And they do this despite smoking like chimneys. Maybe they are related?

    Life expectancy in Switzerland is 82.2 compared to only 78.2 in the US. And the quality of life at old age is much better. Obesity is rampant at home, but rare in the Alps. Diabetes is unusual in Switzerland, but epidemic in the US. Over 400,000 Americans undergo kidney dialysis in the US, while the treatment is almost unheard of in Europe. This is why the US is spending 12% of GDP on health care, on its way to 17%, while Switzerland is flat lining at 8%, with an older population.

    I thanked Dr. Christian for his advice. The total bill? $200. I headed to the local pharmacy to get a one year supply of my anti-cholesterol drug, which I can buy 90% cheaper than at home. That allows me to keep my total health care costs under $500 a year.

    I then celebrated my good fortune by stepping across the street for a bratwurst and a beer, which my American doctor once banned me from. There, I planned my coming assault on the Matterhorn.

    The Mad Hedge Fund Trader

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: 1990671, ~/Articles/ArticleHandler.aspx, 12/20/2014 4:51:32 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