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.
Luck of the Irish?
Earlier this month I highlighted Irish women's health pharmaceutical company Warner Chilcott (Nasdaq: WCRX ) , following a sizable tumble because of a $560 million sale of stock by a consortium of holders in the stock. The move came shortly after the company took itself off the auction block and financed a $1 billion dividend payment by borrowing $600 million from a revolving credit facility. Under normal circumstances, I'd be avoiding moves of this nature like the plague -- seriously, who goes into debt to pay out a dividend?!
However, there are other reasons to be optimistic about Warner Chilcott's future. For one, outside of the one-time dividend payment, the company did declare an annual dividend of $0.50, to be paid semi-annually. At $0.50, Warner Chilcott instantly goes from paying zero in dividends to yielding close to 4%, which places it on par with the yield of many big pharmaceutical companies. Second, although sales of Warner Chilcott's leading drug, Actonel, have been weakening rapidly around the world, I do anticipate that sales weakness here will taper toward the end of the year and that its new product, Atelvia, should cancel out any Actonel weakness by as early as next year. Finally, the valuation just makes sense -- especially with Jazz Pharmaceuticals (Nasdaq: JAZZ ) selling its women's health business to Meda for $95 million. I know Warner Chilcott is no longer on the auction block, but at just three times cash flow, it's going to draw a lot of attention.
Keep on trucking
If you're curious, yes, I do apparently have a minor fascination with the trucking sector lately. This week I want to take a closer look at Marten Transport (Nasdaq: MRTN ) , a North American trucker that transports foods and products that are temperature-specific.
As with many logistics companies, slowing global demand, shrinking consumer spending, and rising fuel and labor costs present an immediate threat. Marten has done a very good job of bucking the majority of these trends by focusing on cost controls and improving its efficiency, as well as passing along reasonable price increases. In the second quarter, Marten was able to generate slightly higher revenue from fuel surcharges, but the real gains were derived from an 830-basis-point improvement in regional truck usage aided by a 5.4% improvement in average truckload revenue. Marten's dividend isn't much to look at and is definitely not the reason to buy the stock, but its consistent performance in light of rising fuel prices demonstrates that a strong and fiscally sound management team is leading this company. Now that is a reason to buy Marten Transport!
Jolly green Japanese giant
To round out the week, I want to delve back into a category I haven't touched for months, but is usually a great source of dividend payments: foreign telecoms. Specifically, let's take a closer look at NTT DoCoMo (NYSE: DCM ) , Japan's largest wireless operator.
You'd think that with half of Japan's market share, NTT DoCoMo would be having its way with competitors in Japan, but that hasn't exactly been the case. NTT's earnings have stagnated in recent years as its privately held peers have created headwinds against the company. But it's entering two new phases in its growth period that should once again swing the tide back to NTT.
To begin with, growth in smartphone sales has been phenomenal and upsells of data packages should give NTT a big margin boost beginning in the next couple of quarters. In its first-quarter report, NTT noted that it nearly doubled its smartphone unit sales to 2.49 million. Second, and most important, NTT is the mobile payment kingpin in Japan. Wireless service providers in the U.S. have struggled with this particular aspect of development and are currently ceding revenue to eBay (Nasdaq: EBAY ) , whose PayPal service is arguably the best-positioned mobile payment platform in the United States. With mobile payment usage still in its infancy, NTT's growth could actually be on the verge of exploding higher. Let me also not forget to mention that NTT pays a remarkably strong 4% yield and is a relatively nonvolatile investment -- perfect for value and income seekers.
No magic voodoo spells this week; just three companies that are doing a good job at controlling costs and are valued at a reasonable price.
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 Warner Chilcott to My Watchlist.
- Add Marten Transport to My Watchlist.
- Add NTT DoCoMo to My Watchlist.