3 Stocks Near 52-Week Lows Worth Buying

Do these fallen angels deserve a second chance? You be the judge!

Feb 11, 2014 at 4:33PM

Just as we examine companies each week that may be rising past their fair value, we can also find companies trading at what may be bargain prices. While many investors would rather have nothing to do with companies wallowing at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to a company's bad news, just as we often do when the market reacts to good news.

Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.

Hercules! Hercules!
What? You actually thought I'd start us off with something other than an offshore driller?

This week I'm moving away from deepwater drillers and pointing out a shallow-water driller, Hercules Offshore (NASDAQ:HERO), which has been hit in recent weeks following what I believe was a solid fourth-quarter report, but one which offered guidance in 2014 that didn't quite meet spec with Wall Street analysts.

For the quarter, Hercules Offshore reported an adjusted profit of $0.14, surpassing expectations by $0.06 as revenue spiked higher to $235.3 million from $174.7 million due to higher charter dayrates both domestically and internationally, as well as the addition of newer drilling rigs. Domestic dayrates rose 48% domestically, but revenue was held back internationally by a 7% drop in rig utilization to 71.7%.

As The Motley Fool's energy gurus Taylor Muckerman and Joel South discussed on Friday, Hercules does have its risks, including the fact that shallow-water contracts are for shorter periods of time and that PEMEX, one of Hercules' key contractors, could eventually privatize its oil markets. With a little less job security than deepwater drillers, Hercules is always actively hunting for that next contract.

However, Hercules has done a good job of expanding into international waters and has been boosting its capital expenditures budget while keeping operational costs under control. In fact, operating expenses actually fell last quarter excluding one-time costs. It also has a strong presence in the Gulf of Mexico, which should continue to see a boom in orders as the Obama administration continues to emphasize domestic energy production.

Ultimately, we have an offshore driller with growing charter dayrates, declining year-over-year comparable operating expenses, and a boatload of drilling opportunities. The drilling market certainly isn't without its hiccups, but at six times forward earnings I'd suggest the risk-versus-reward is favoring long-term buyers at this point.

The world on its shoulders
Absolutely no pun intended here, but for our next company we're moving from Hercules to Atlas Air Worldwide (NASDAQ:AAWW), a global aircraft and aviation outsourcing company. Unlike standard aircraft leasing companies that we've looked at in the past, Atlas Air focuses on the aspects of freight transportation, leasing out its owned planes in contracted ventures as well as providing charter flights for branches of the U.S. military.

In recent weeks Atlas Air was creamed after a majority-owned subsidiary, Global Supply Systems, announced that British Airways would be returning three of GSS' aircraft early and ending a long-standing cargo-freighter contract. The early termination will result in an so-far-undisclosed fee, but it'll also require Atlas Air to begin shopping around these three 747-8 freighters for new work.

As my Foolish colleague Travis Hoium pointed out, there is significant potential for this move to turn out to be a positive for Atlas Air if the early termination fee is high enough and Atlas is quickly able to land these three aircraft in a new contract.

Another factor we have to consider is that airplanes are certainly not getting any cheaper. Many commercial airlines are turning toward leasing contracts because buying new planes is too costly and maintaining older planes can be even worse. The same is likely to be true for freight operators, which are likely going to turn to companies -- such as Atlas Air -- that can hit that middle ground of supplying newer, more fuel efficient planes, without the expansive costs of buying entirely new aircraft.

Atlas' recent earnings history has been a bit shaky, but with a forward P/E of less than nine and the industrywide trend pushing toward more leasing contract activity, I'd suggest digging a bit deeper into Atlas Air.

A rebound you can bank on
Lastly -- and to end our theme of mythological characters -- we have mid-Atlantic retail and commercial bank Susquehanna Bancshares (NASDAQ:SUSQ).

Susquehanna has been walloped since reporting its fourth-quarter results three weeks ago, with shares losing more than 15%. The culprit, as you might expect, was the company's full-year guidance, which was reduced on Wall Street after its real estate loan portfolio decreased by 3.8%. Beyond this decline I see plenty of positives for Susquehanna and its shareholders to build upon after this sizable sell-off.

First, I'd point to the catch-22 effect of the mid-Atlantic housing industry. There is perhaps no region of the country demonstrating weaker home price growth than the Mid-Atlantic. While this does act as a deterrent to Susquehanna's loan growth, it will also act as a downside buffer for the company's loan portfolio. As an added bonus, it's not as if all banks aren't having issues with their real estate portfolios with interest rates well off their May lows.

Also, I'd point to Susquehanna's higher return on average assets, which increased to 0.95% from 0.81% for the full-year in 2013 as net charge-offs as a percentage of loans decreased 20% to 0.44%. In sum, Susquehanna is squeezing better profits out of its existing loan portfolio while reducing its risk and improving overall liquidity. 

With Susquehanna valued at a reasonable 12 times forward earnings and a mere 73% of book value it seems quite reasonable to expect Susquehanna to rebound in the coming years.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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