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.
A basic-necessity cash flow machine
There are few truly basic necessities to life, but our water is one of them. Water is incredibly inexpensive given how important it is to our everyday lives, and we often overlook its importance when it comes to investing our hard-earned money. A company here that I'd suggest digging more deeply into would be Aqua America (NYSE:WTR), one of the largest water utility companies in the U.S., which services close to 3 million people on the East Coast and Ohio River Valley.
Like most water utilities, growth occurs in two primary ways: either through acquisitions or via rate increases coupled with tight cost controls. For Aqua America shareholders, they're receiving a healthy handful of both!
Through the early part of December, Aqua America had brought 15 new water and wastewater facilities into its fold through acquisitions -- and that's in 2013 alone. These new customers provide the expansive growth that shareholders look for in the top-line, while rate increases in New Jersey, Texas, Illinois, Ohio, and Virginia announced in the third-quarter add the pricing power and profits that drive EPS higher.
Another notable factor that's driven higher by rate increase is Aqua America's dividend. Currently sitting at a yield of 2.5%, this dividend is well-protected by the fact that even in times where the weather works against Aqua America, the company can still deliver healthy profits. Referencing its third-quarter results yet again, the company actually reported a 5% year-over-year decline in revenue as rainfall in its serviced regions increased, lowering the demand for water for outdoor purposes. But because of tight expense controls (total expenses rose just 1%) and rate increases, its net income rose by 26%!
Water utilities like Aqua America certainly aren't going to knock your socks off with their growth potential, but they're a good way to collect dividend income and sleep well at night.
Drilling deep for value
Another week, another offshore driller that is just dirt cheap by all standards of the word. This week I'm highlighting Atwood Oceanics (NYSE:ATW), an operator of 13 current mobile offshore drilling units.
On paper, offshore drillers look like a genius long-term play. The demand for oil and natural gas extraction is only going to increase as emerging market economies like China and India industrialize, and as major world powers like the U.S. try to reduce their reliance on foreign energy sources. Much of the world's deepwater and ultra-deepwater oil assets are still waiting to be discovered or recovered, leaving specialty mobile drillers like Atwood Oceanics in a prime position to benefit.
The other factor that works in Atwood's favor is simply that there isn't a lot of competition in the field. Because a number of its peers' contracts and backlog can be spoken for years in advance, there's rarely a lack of opportunities for Atwood to lock in. Currently, Atwood's rigs are located around the globe -- off the coast of Asia, Australia, and Africa, and in the Gulf of Mexico.
The company's latest results, reported two weeks ago, do point to some modest softness in its top-line growth, which is consistent with what we've been hearing from other offshore drillers over the past couple of weeks. Transocean (NYSE:RIG), for example, cautioned in recent months that it's still looking for work for about a third of its fleet for 2014. However, Atwood's charter dayrates remain among the best in the industry, and as Foolish energy analysts Taylor Muckerman and Joel South noted shortly after Atwood reported, its jackup rig growth remains phenomenal.
Over the short-term, there could be some ongoing top-line weakness as new rigs hitting the market all simultaneously look for work, but over the long run I believe there are still more than enough underground assets and too few rigs to meet exploration and production companies' demands. At less than seven times forward earnings I'm very interested in Atwood!
Pedal to the metal
It certainly won't get hearts pumping like the muscle cars that Detroit's big three are currently churning out, but Honda Motor (NYSE:HMC) has dipped to a point where it could be time to shift out of neutral, put this stock in drive, and press the pedal to the metal.
A number of factors have been working against Honda in recent years, both domestically and in China. In the U.S., tougher competition from the likes of Ford (NYSE:F) -- which has certainly caught up to Honda in terms of fuel economy with its EcoBoost engine -- has stymied auto sale growth, while anti-Japanese sentiment in China caused Honda's sales to falter through the first-half of 2013. Things, though, could be at an inflection point.
In December, Honda was able to grow its unit sales in China by 60%, which followed a doubling in year-over-year unit sales in November and a 211% gain in October. It's true these figures were up against extraordinary circumstances, but they point to Honda's growing acceptance in the world's fastest-growing auto market.
In the U.S., Honda joined Detroit's finest in the negative column for January's weather-weakened auto sales, but its sales volume only slipped 2% versus the 7% industry average. In fact, the Honda CR-V actually delivered a 2.4% sales increase during the month! Honda also introduced a redesigned Accord this year in all-electric and gasoline-electric hybrid models, and unveiled the redesigned Fit for 2015, which it anticipates could help it regain U.S. market share.
At a mere nine times forward earnings and 91% of book value, Honda is being priced as if its future growth were moot at best. While I'd certainly call the company far from revolutionary lately, its dependability and economy pricing make it a staple in the U.S. and China. I would strongly suggest you take a deeper dive into Honda at these levels.
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 owns shares of, and recommends Atwood Oceanics and Ford. It also owns shares of Transocean, and recommends Aqua America. 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.