3 Stocks Near 52-Week Lows Worth Buying

Just as we examine companies each week that may be rising past their fair values, we can also find companies trading at what may be bargain prices. While many investors would rather have nothing to do with stocks 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.

Strong investments start with a good foundation
If time machines were real, shareholders in technical consulting firm Jacobs Engineering Group (NYSE: JEC  ) would be hopping aboard that train and riding about three weeks into the past to sell their shares.

As my Foolish colleague Alex Planes noted in late April, shares of Jacobs Engineering were just clobbered after the company reported a year-over-year decline of 21% in EPS to $0.63 from $0.80 despite a 12% surge in revenue to $3.18 billion. Both figures, however, were well below Wall Street's expectations as higher expenses, weather-related weakness, project issues in Europe, and costs associated with its acquisition of SKM, announced in September of last year, weighed on its bottom line. All told, these unique costs helped push Jacobs' guidance for the year down to a fresh range of $3.15-$3.55 per share from a prior forecast of $3.35-$3.90.

Although the company missed the mark, I believe this 20% swoon in a matter of three weeks could make for an intriguing buying opportunity for investors willing to take on a bit more risk than normal.

The key point is that Jacobs Engineering's costs included "several unusual items." This doesn't mean these costs can be ignored, and they can't change the course of what Jacobs reported in the first-quarter. But the comments from CEO Craig Martin clearly demonstrate that these costs are expected to negatively affect Jacobs' bottom line over the very short term, and they're not indicative of an endemic trend of higher expenses. Its acquisition of SKM, for instance, was bound to boost costs in the near term, with the deal only closing five months ago. In other words, Wall Street's and Jacobs' own expectations were probably a bit lofty this past quarter.


Source: Jacobs Engineering investor presentation.

Also note that Jacobs' total backlog rose notably, by 10%, to $18.4 billion, with its technical professional services backlog soaring 15% to $12.6 billion. For consulting and technical service provides it's less important to look back on the past three months than it is to understand how they're lining their pockets for the future. This backlog would indicate in the neighborhood of five to six full quarters' worth of work.

Unfavorable weather and acquisition costs may have gotten Jacobs down this past quarter, but at just 13 times forward earnings the price looks right to dig a bit deeper.

All the trimmings
It's been a pretty rough year for food-based stocks as well, and that goes double for recent IPO Potbelly (NASDAQ: PBPB  ) , which more than doubled from its IPO price and then saw practically every cent of those gains chiseled away since its debut in October.

Like Jacobs Engineering, the weather provided a massive roadblock for Potbelly, a provider of sandwiches, salads, and other assorted healthy food items, in the first quarter. During the quarter, Potbelly reported a 7.5% increase in revenue, driven by the opening up eleven new shops, but still saw comparable-store sales fall by 2.2%. As the press release note, this was driven by an unfavorable 375 basis point hit due to the extreme cold across much of the country.

Valuation has also played a big role in pushing Potbelly lower. As Foolish colleague Sean O'Reilly pointed out last week, the pullback in Potbelly was largely warranted with the company trading at north of 100 times its current year P/E at one point despite weaker comps than its key restaurant rivals.

But I'd suggest that it could be time for investors to consider fattening up for the summer -- on Potbelly shares that is!


Source: Potbelly investor presentation.

Potbelly has a number of factors working in its favor. To begin with, it's still small and nimble enough that it can shift its menu with relative ease to meet customers' demands. This is something that's increasingly difficult for its larger rivals to do and should give Potbelly an edge with regard to building its brand and introducing new items (as well as pulling unsuccessful items).

Another factor, as we saw above, is that the weather is unpredictable, and it's probably not a good idea to fault Potbelly for something it has no control over. Without this negative effect, Potbelly appears on track to deliver low-single-digit organic growth throughout the next couple of years as it focuses on expanding its shops into new markets.

Finally, consider Potbelly's strong capital position as well. With $68.5 million in net cash and more than $28 million in operating cash flow over the trailing 12-month period Potbelly doesn't need to head to the bank to fund its expansion efforts. While I would of course like to see the company work on improving its organic growth rate, what this shows me is that Potbelly's growth trend is as self-sustaining as consumers' push into health-conscious foods. At a forward P/E of 34, Potbelly isn't going to sound the value alarm for investors, but its growth trajectory and ample cash paints that valuation in an attractive light in my book.

Bank on this return
Lastly, we have poor Citigroup (NYSE: C  ) , one of the nation's largest money center banks and the largest issuer of credit cards in the nation.

On the surface there are plenty of reasons for investors be skeptical of Citigroup. The bank was forced to raise copious amounts of capital during the recession and was one of five banks to fail the latest round of stress tests. Citigroup has been seeking to boost its quarterly dividend to $0.05 per share from $0.01 and institute a $6.4 billion share buyback, but was sent packing by the U.S. Central Bank despite having a 6.5% tier 1 common ratio. The Federal Reserve noted that cloudiness in projecting losses in its global operations and an inability to reflect all business exposure in its internal stress tests thwarted its ability to grant Citigroup its request.

But have no fear because long-term sanity is here! While Foolish banking specialist John Maxfield is correct that Citigroup probably isn't the best buy-and-hold stock for retirees, for more risk-willing investors it could be quite the bargain.

For one, Citigroup is doing its best to refocus on its core principles of making loans, issuing credit cards, growing deposits. By straying away from dangerous investing tools and focusing on core banking principles Citi hopes to shed its image of being a highly volatile bank with a lower quality loan portfolio and attract longer-term investors. An example has been the company's steady reduction of its servicing rights portfolio which holds a number of Fannie Mae residential first-mortgage loans. In January Citi sold $10.3 billion worth of these loans to Fannie Mae which will, in turn, transfer the servicing rights to another firm. By ridding itself of noncore assets it can hopefully demonstrate to the Fed and investors that it's looking to put potentially slow growth and/or dangerous investments in the rearview mirror.

Investors should also keep in mind that Citi's credit-card-issuing business could become a big growth driver as long as the economy continue to motor higher. As the largest issuer of corporate credit cards Citi can rack up consumer debt and profit from this interest on that debt, especially if the end of QE3 helps push rates up to slightly higher levels.

And, of course, there's the simple point that Citigroup is very inexpensive relative to its peers. Trading at 30% below book value and less than nine times forward earnings you'd think the "bankocalypse" was upon us. This valuation does take into consideration its inferior 0.72% return on assets over the trailing 12-month period, but it really doesn't factor in what steps Citi is taking now to get better down the road. I suspect patient investors could be rewarded with nice gains here within three to five years.

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