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.

Plenty of "pawtential"
Sometimes you just have to scratch your head over certain business models that seem destined to succeed and yet struggle to grow. A perfect recent example of this is online pet medication and nutrition supplier PetMed Express (NASDAQ: PETS  ) .

Pets have become more integrated into the American family, and pet product costs have soared. Yet in its fourth-quarter results, released in May, PetMed Express reported a nearly 2% year-over-year decline in profit as net sales dipped to $48.6 million from $51.1 million. A lack of new orders, as well as the frigid winter, put a damper on just about every business segment's sales, so PetMed gets a bit of a flier on this account.

On the plus side, PetMed Express improved its gross margin via strict cost controls and increased its average order to $75 for the full year from $73 in the previous fiscal year. This signals that PetMed's product mix and/or pricing power is improving.

Source: Brad Holt, Flickr.

What makes me believe that PetMed could be set for a turnaround is the company's unique business model of using the convenience of online pet products to undercut the competition. On one hand, there are certain situations in which pet owners will prefer to deal with a human being. But when you're ordering food and supplements, PetMed's business model makes a lot of sense. The prospect of ordering from the comfort of home helped push online sales to 79% of PetMed's annual revenue in its last budget year from 77% in the prior year.

And don't overlook the company's huge dividend, which I believe is fully sustainable. Given a yield of 5.1%, income-seeking investors can handily outpace a 30-year Treasury bond while also having the potential to take advantage of share price appreciation.

Finally, I'd suggest investors consider PetMed's advantageous cash position ($33.8 million) and zero debt as further reason it might be an attractive buyout target. Understand that this is pure speculation on my part, as PetMed has given no indication that it is seeking a buyer; but its current price tag of roughly $265 million, including its cash, makes the company pretty inexpensive, considering that it holds a unique piece of a steadily growing pie.

Extra, extra! Read all about it!
I hope you're sitting down for this next pick, because it's far outside of my usual realm -- yet it's consistent with my search for deeply discounted and misunderstood stocks. This week's second selection is none other than Meredith (NYSE: MDP  ) , a female-focused media and marketing company.

Meredith has traditionally been viewed as a magazine publisher, and the thought of buying any company focused on print in an increasingly digital world is enough to give an investor indigestion. But relax: Meredith has done a fantastic job of expanding its multimedia portfolio and is seeing growth practically across the board.

In third-quarter results released in April, Meredith reported close to a 1% decline in revenue and a $0.02 decline in earnings per share from the prior-year period. However, it also delivered steady gains in retransmission revenue as network revenue and digital viewership is beginning to take off. Meredith's local media group saw revenue increase 14% to $98 million, and it just recently took ownership of a television station in St. Louis. Furthermore, Meredith generated a record 51 million unique digital visitors in the third quarter.

July 2013 Better Homes and Garden. Source: Meredith.

What makes Meredith so unique (tell me if this sounds familiar) is its niche business model. Because Meredith focuses its print and digital products on women with brands such as Better Homes and Gardens, Family Circle, and FamilyFun, it's able to focus on what women want. I'm not saying that other media companies with a dual emphasis on men and women don't know what they're doing, but Meredith's specific focus on women could give it a unique edge over its peers.

Further adding to Meredith's allure is the fact that it is income-investor friendly. On top of an existing $16 million in share repurchases authorized under a previous plan, Meredith in May announced an additional $100 million stock buyback program; this followed a 6% dividend increase in February. All told, Meredith is dishing out $1.73 per share for a hefty annual yield of nearly 4%.

With Meredith reaffirming its full-year fiscal 2014 guidance and valued at a reasonable 13 times forward earnings, I'd consider looking past the skepticism and digging deeper into this company.

No hole in this doughnut
Similar to the previous two highlighted companies, Dunkin' Brands (NASDAQ: DNKN  ) , the company behind the famous Dunkin' Donuts and Baskin-Robbins, pointed its doughy finger at the polar vortex as the cause of its weaker first-quarter results.

The company's Dunkin' Donuts chain, which primarily features the rapidly growing categories of coffee and breakfast, saw comparable-store sales grow by just 1.2%, which was down from the 1.7% in comparable-store sales growth it reported in the first quarter of 2013. Thankfully, international and royalty revenue growth from its Baskin-Robbins chain saved Dunkin' from an earnings decline for the quarter.


Source: Robert Banh, Flickr.

Some investors took this weak report as a sign that the Dunkin' Brands growth spurt is over and that its Dunkin' Donuts business has matured into a slower-growth model. I think that couldn't be further from the truth, with the company finally ready to dip its toes into the waters of the Pacific for the first time in more than a decade.

Dunkin' Donuts did attempt to move out west in the late 1990s but found that it didn't quite understand its West Coast customer as much as it did its East Coast base. With its experience now earned, and coffee having proliferated throughout the West Coast, the region appears to be considerably more inviting. Simply having a brand-name alternative to Starbucks might prove more than enough to give its business a big boost out west. Not to mention, Dunkin' Donuts' customers are the most loyal of all coffee drinkers!

Consider also that Dunkin' Brands has allied itself with strong brands. Dunkin' in 2011 actually became the first big coffee-style chain to partner with Keurig Green Mountain (NASDAQ: GMCR  ) , bringing its signature coffee to K-Cups. The partnership has allowed both Dunkin' Donuts and Keurig Green Mountain to expand further into consumers' homes, boosting profits and branding for both companies.

Long story short, with a long-term growth rate that could well stick between 8%-10% for the remainder of the decade and a forward P/E that has dipped down to 21, I'd suggest now could be the time to add this delicious stock to your portfolio.

Even if these 3 stocks rebound, chances are they'll struggle to keep pace with this top stock over the long run 
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2994964, ~/Articles/ArticleHandler.aspx, 10/30/2014 11:42:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement