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.

Is this too good to be true?
Is the e-commerce solutions business so bad that they're practically giving it away for free? If you're a shareholder in cloud-based e-commerce and payment solutions software provider Digital River (NASDAQ: DRIV  ) , you might think so.

Digital River, which provides e-commerce, payment processing, and marketing solutions software, has seen earnings inconsistency in recent years sap its once high-flying stock. Revenue growth has largely stagnated as it integrates new acquisitions -- including LML Payment Systems -- into the fold and as businesses temper their spending.

However, Digital River is also sitting on a monstrous $12.07 per share in net cash. Furthermore, it's been paying down its remaining debt balance and repurchasing its shares on a regular basis. With the company closing yesterday at just $14.12, you're getting the remaining business, excluding cash, for just $2.05 per share! That's what I'd call one heck of a deal considering that Digital River has been free cash flow positive in every year over the past decadeand is positioning itself in the rapidly growing field of electronic payments. Yes, I would love to see better organic growth prospects, more consistent recurring revenue, and perhaps a dividend; but, as it's sitting on a $12-per-share cash cushion, this is a smart and strategic bet that could be worth taking.

Outsourcing your profits
If you're looking for companies near 52-week lows that could be primed for a rebound, one area of research where you'll find more than ample opportunity is in PC-related businesses.

Synnex  (NYSE: SNX  ) , for example, is a global information technology supply chain services company that's fallen on hard times. When Synnex reported its first-quarter results at the end of March, the company nosedived as it forecast weaker second-quarter results than the Street anticipated. The company blamed weakening PC and printer sales, as well as competitive pricing, for the upcoming earnings shortfall.

However, there are also ample reasons to believe that Synnex's issues will be short-lived and that investors may be overreacting to its weak guidance. First of all, with the enacting of the Patient Protection and Affordable Care Act, U.S. businesses are being given more than ample reason to outsource some of their production in order to save on tax or insurance costs. That alone should be a big benefit for Synnex. Another factor to consider, which at least one analyst at Brean Capital has keyed in on, is that pricing pressure rarely acts as a deterrent to Synnex's bottom line for longer than a few quarters. Finally, it's a simple matter of valuation. Synnex is now trading for just 92% of book value despite producing $228 million in positive cash flow last year and trading at just eight times forward earnings and six times cash flow.

Even if Synnex grows by modest single digits over the next few years, it more than justifies a P/E ratio that I'd estimate is 30% to 50% higher than where it is now.

Renting never looked so profitable
If you're a Rent-A-Center (NASDAQ: RCII  ) shareholder, you'd probably just as soon block last week out as a bad memory. The nation's largest rent-to-own furniture and electronics store stumbled badly as higher payroll taxes, higher fuel costs, and delayed tax refunds took their toll. When all was said and done, Rent-A-Center lowered its full-year EPS outlook by $0.30 and dropped its revenue growth forecast to 3.5%-5.5% from previous expectations for 5%-8% growth.

Yet, if you were to ask me, I'd say that Rent-A-Center couldn't be in better shape. Sure, the IRS furloughs hurt by keeping tax refunds away from prospective customers, but eventually those refunds are going to make it to consumers. In addition, oil prices have been on the decline in recent weeks, not really hitting any abnormally high levels in the past two years. Rent-A-Center is perfectly positioned to succeed in a slow growth environment like we're in now, where people are still recovering in terms of both their credit score and their pocketbook.

I think another way to look at this is by comparing Rent-A-Center to furniture retailer Ethan Allen Interiors (NYSE: ETH  ) , which also badly missed earnings expectations last week. Ethan Allen alluded to weakness from Hurricane Sandy as a big part of the 84% drop in year-over-year GAAP profits, but also noted weakness in shipments to China as another reason. Personally, I see this as more confirmation that retail furniture is still weak, which should bode positively for Rent-A-Center going forward. At just 10 times forward earnings, Rent-A-Center certainly deserves a closer look!

Foolish roundup
Sometimes in order to find turnaround candidates, you have to be able to see the good in the bad. All three companies here have demonstrated earnings weakness recently; however, each possesses an attribute -- whether it be Digital River's huge cash balance, SYNNEX's prime position as a global IT outsourcer, or Rent-A-Center's perfect position in the slow-growth domestic markets -- that makes it a logical pick over the long run.

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.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


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