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.

Clouded judgment
I know the market can sometimes be merciless around earnings time, but VMware (NYSE: VMW  ) shareholders are still trying to get the license plate of the truck that hit them.

The cloud-virtualization specialist that I selected as one of the five best ways to play the upcoming investment boom in big data centers reported fourth-quarter results that outpaced estimates in the revenue and earnings column but came up well short of what the Street had been looking for with regard to first-quarter and full-year sales guidance. For the first quarter, VMware is forecasting just $1.17 billion to $1.19 billion in revenue compared to the $1.25 billion consensus estimate, with license growth projected at just 8% to 11%. EMC (NYSE: EMC  ) , which still owns 60% of VMware, was also slammed on the news and issued its own full-year sales forecast of $23.5 billion, which fell $100 million shy of estimates.

Still, the market for VMware looks promising even if more competitors are entering the cloud-virtualization playing field. VMware is pushing into other business ventures, as evidenced by its $1.26 billion purchase of Nicira last year. With an angle on networking equipment and, as my Fool colleague Anders Bylund points out, a cloud-based management solutions joint venture with EMC , VMware should be able to stabilize its growth prospects. With the fiscal cliff out of the way, we're beginning to see tech spending tick up, and the transition to big data centers isn't a matter of if for enterprises, just when it will kick into high gear. VMware is perfectly suited to handle this transition and looks like a screaming buy at current levels.

Time to flip the switch
If you're looking for a way to keep investors from investing in a cash cow like an electric utility, FirstEnergy's (NYSE: FE  ) electricity-generating portfolio that relies on coal and nuclear energy is a good start. This isn't to say that FirstEnergy doesn't operate renewable energy facilities as well, because it does have hydroelectric, solar, and wind-generating capacity, but its reliance on coal and nuclear is much higher than that of its peers. With thermal coal demand down from the year-ago period, and natural gas prices coming in significantly cheaper than the equivalent cost of operating a nuclear plant, FirstEnergy has been put in a serious bind. Tack on the damaging effects of Hurricane Sandy, which wiped out power for numerous customers and resulted in costly repairs, and you have a layer of yellow caution tape a foot thick to dig through. 

However, I think the time has come to flip the switch to "on," as we're seeing a stabilization in thermal coal demand as the first cold weather of the season sweeps across the United States. More important, President Obama's call for U.S. energy independence gives me a strong inclination that, with nuclear power being a clean-energy source, we may see a subsidy from the government sometime in the near future to encourage nuclear production and build-out. FirstEnergy's dividend yield of 5.4% is the fourth-highest among a total of 139 electric utilities and its forward P/E of 13.5 is well below the industry average.

About the only decision I will fault them for is paying for the naming rights to the Cleveland Browns' NFL stadium (my apologies, Cleveland fans), but that's a whole different ball game.

Zig-ZAGGing your way to profits
It's difficult for commoditized tech products to gain traction in a tough spending environment -- it's even tougher when one of your best sales routes, Apple (NASDAQ: AAPL  ) , has what's deemed a horrendous quarter. That's the current plight of ZAGG (NASDAQ: ZAGG  ) , a maker of audio accessories and protective coverings for cellphones that is "suffering" after Apple reported selling "only" 47.8 million iPhones in the fourth quarter. The thought process of why ZAGG is down relates to increased competition in cases from smaller pop-up vendors, as well as a move into audio accessories in a market mostly dominated by Skullcandy (the sub-$50 price point).

However, I'd also point to the fact that even if margins are being squeezed slightly by an inevitable price war, the smartphone peripherals pie is actually expanding. Just take Apple, for example, which sold 10.8 million more iPhones in the fourth quarter than in the comparable period last year. This is an expanding market with practically insatiable demand from a new user and upgrade perspective. That bodes well for ZAGG, which has an almost symbiotic relationship with Apple when it comes to smartphones and tablets. Ultimately, it isn't just Apple but nearly all cellphone and tablet makers (sorry, BlackBerry, not you!) that are seeing big increases in demand. This should lead to a higher number of unit sales that will more than cancel out the negative effect on margins. At just seven times forward earnings, ZAGG is worth the gamble.

Foolish roundup
This week we're ignoring the little trends and focusing on the big trends: Huge tech investments in cloud computing will help VMware; a move toward U.S. energy independence boosts FirstEnergy's long-term cash flow outlook; and an increasing demand for cases and audio accessories makes ZAGG a compelling buy.

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.

Will the real Apple please stand up?
There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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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 February 05, 2013, at 12:54 PM, jtrivasi wrote:

    You state that EMC "still owns 60% of VMWare". Have they been divesting? I thought they owned 80% of VMWare?

  • Report this Comment On February 19, 2013, at 1:50 PM, rsinj wrote:

    EMC still owns 80% of VMWare.

    They haven't been divesting. On the contrary, they've continued buying shares hand over fist.

  • Report this Comment On February 20, 2013, at 10:11 PM, rsinj wrote:

    From EMC's Dec 31 13G filing of VMW holdings:

    9. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

    341,050,467 shares of Class A Common Stock

    11. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (9)

    79.73% (2)

    (1) Includes (i) 41,050,467 shares of Class A Common Stock and (ii) 300,000,000 shares of Class B Common Stock convertible into an equal number of shares of Class A Common Stock at any time. See Item 4. Assumes the conversion of the Class B Common Stock referred to above into shares of Class A Common Stock.

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