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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.
This year appears to be on pace to mark the first downturn in both handset and PC sales in quite a while, but that shouldn't put a damper on the outlook of for the world's second-largest chip foundry, United Microelectronics (NYSE: UMC ) .
The battle between UMC and Taiwan Semiconductor is about as heated a rivalry as the New York Yankees facing the Boston Red Sox, with each scoring major contract victories throughout the years. Most recently, UMC scored a contract with IBM (NYSE: IBM ) in July to develop a new line of 20-nanometer chips. These contracts may taper off a bit as tech cycles ebb and flow, and tend to fluctuate in tandem with economic growth rates, but throughout the past decade UMC has been profitable in all but one year.
A bet on UMC is a bet on increased demand for mobile units of all forms. Although falling average selling prices for mobile devices could negatively impact UMC's future margins, a rising volume of mobile unit sales due to those falling ASP's should more than make up for the difference. UMC is profitable, paying a 3% yield, has $240 million in net cash, and is valued at just 70% of book value. Appears to be a bargain to me!
It's a renters' market
The housing market has been showing signs of a rebound for the first time in well over five years, but don't think for a moment that means rental rates are going to be declining anytime soon or that occupancy rates are poised to fall. That's why I feel it's a smart move to take a closer look at Washington REIT (NYSE: WRE ) , a real estate investment trust that owns multifamily, office, medical, and retail properties in the Washington, D.C., area.
In Washington REIT's most recent quarterly report, the company narrowed its funds from operation slightly lower than its previous forecasts and investors sent the stock near a new low. I feel, though, that this is unwarranted. Total occupancy rates edged down ever-so-slightly, but rental rates were up across all four sectors, with multifamily properties demonstrating a 3.4% rise in rates. Net income for the quarter was $9.6 million, yet this was up over the one-time property disposal-adjusted $2.7 million it earned in the previous year.
Instead of punishing Washington REIT for rushing into poor property purchases, I feel we should applaud it for being prudent with its cash. This REIT has a yield nearing 5% and has remained steadily profitable during even the height of the recession. Needless to say, sign me up!
A company I dig
It isn't a secret that I feel gold miners are incredibly undervalued and underappreciated with respect to the appreciation we've seen in the price of gold itself. Today we'll add another miner to the buy list: Gold Fields (NYSE: GFI ) .
Gold Fields, much like the entire mining sector, has dealt with rising labor and fuel costs, as well as labor conflicts in South Africa, which have led to high mining costs in that region. However, it's also made some smart moves along the way, including the purchase of two mines in Ghana from IAMGOLD (NYSE: IAG ) last year, which brought its mining cash costs down slightly while upping output, and the reduction of its energy usage by 14% in its South African mines this year.
Facing the prospect of multiple global uncertainties including Europe's debt crisis and China's slowing growth, gold prices should remain steady for years to come, which should be a boon for Gold Fields, which is trading at just six times forward earnings and pays out a 3% yield. It's definitely a company I dig at this level.
This week's theme is all about underappreciated profits and dividends. UMC, Washington REIT, and Gold Fields are all delivering strong dividends and healthy profits to investors, yet get no respect. Look for them to rebound in the not-so-distant future.
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