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.
On the Lam
There aren't very many reasons to be excited about the near-term prospects for Lam Research (Nasdaq: LRCX ) . The company, which makes semiconductor equipment that manufacturers like Samsung and Toshiba use to make their chips, is suffering from severe margin contraction, a slowdown in global mobile demand in 2012, and integration issues since its purchase of Novellus. Furthermore, Applied Materials (Nasdaq: AMAT ) cut its profit and sales forecast in July, signaling an industrywide equipment slowdown.
Yet I'm extremely optimistic about Lam. To begin with, Lam's purchase of Novellus should create $100 million in cost synergies by 2013, assuming all goes well. It also helps further consolidate a highly competitive sector into a more manageable grouping of high-profile customers. I also like the idea of getting into Lam Research at a reasonably low eight times forward earnings when sentiment toward the stock is at a low. With Samsung as a large customer and Apple readying to release its iPhone 5, investors are dog-piling onto anything that stands in Apple's way. For me, I don't see the lack of Apple as a major customer as a bad thing for Lam; it's actually a nice compliment. I look for mobile demand to increase by high single-digits next year, which should be bullish for Lam and the sector as a whole.
Slow but steady wins the race
Grab on to something nearby and hold on tight, because I don't want anyone to fall over: We're going to take a look at a fixed-income fund, Templeton Global Income (NYSE: GIM ) .
Wake up! It's not that boring, I swear! With the markets rallying so dramatically on the promise that QE3 may help spur economic activity in the U.S., it's not a bad idea to begin giving yourself some downside protection in the form of generally-low-volatility fixed-income funds that invest solely in government bonds.
Templeton Global Income invests around the world, which is why you get a robust 4.6% yield versus those paltry, extremely low, single-digit yields you currently find in the U.S., Japan, and Germany. It definitely helps having a fund manager whose sole purpose is to seek out these high-yielding government bonds, which takes a lot of the guessing out on your part as an investor. But you should understand that these funds aren't completely without risk. As my Foolish colleague Dan Caplinger has previously pointed out, currency fluctuations do threaten to eat into your earnings. However, as downside protection, and with decent near-term market clarity thanks to last week's Federal Reserve meeting and the European Central Bank's aggressive bond-buying plan, Templeton Global Income is definitely worth a look.
Load the caboose
If you're still holding yourself up from our discussion of the previous stock, keep holding on, because we're going to look at a Chinese railroad company as well: Guangshen Railway (NYSE: GSH ) .
Like countless other Chinese companies, Guangshen has been hit by an economic slowdown in all sectors. For Guangshen Railway, this encompasses both its passenger travel and freight side of its business. In addition, it must contend with high levels of skepticism from investors in the U.S. pertaining to Chinese stocks -- and rightfully so, following a myriad of fraud cases over the past two years.
Guangshen, however, can easily overcome these obstacles if it just sticks to its game plan. As an operator of passenger and freight cars, Guangshen has hard assets and a regular annual dividend, so the threat of fraud, though not zero, is considerably less worrisome. The real draw of a rail company like Guangshen comes from the freight portion of its business. With coal remaining such an integral part of China's growth scheme and the country recently passing a $156 billion infrastructure plan, the need to transport materials is only growing. In the U.S., Arch Coal (NYSE: ACI ) recently signed a multiyear contract that it hopes will boost its exports to China fourfold over the next decade. With a commodity boom far from dead and China growing at a brisk 7.6% still, I see a bright future for Guangshen Railway and its shareholders.
This week it's all about piling onto the pessimism. Investors are predominantly negative when it comes to semiconductor equipment makers, fixed-income funds, and anything relating to China, so now could be the time to buy into that fear.
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.
Is a mobile phone surge going to propel Apple's valuation even higher? Find out the answer to this question and much more by getting your very own copy of our latest premium research report on Apple. Packed with in-depth and unbiased analysis on the opportunities and threats Apple faces, this report will give you the tools you need to make a smart long-term investment decision. Better yet, it comes complete with a full year of regular updates. Click here to claim your investing edge today!