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3 Value Stocks Near 52-Week Lows Worth Buying

By Sean Williams - May 27, 2016 at 1:40PM

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These three value stocks may be down, but they're far from out.

While many companies' shares are rising past their fair values now, others are trading at potentially bargain prices. The difficulty with bargain shopping, though, is that you may be understandably hesitant to buy stocks wallowing near their 52-week lows. In an effort to separate the rebound candidates from the laggards, it makes sense to start by determining whether the market has overreacted to a company's bad news.

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

A cure for your 52-week-low ills

It's been a rough week for predominantly clinical-stage drug developer Ionis Pharmaceuticals (IONS -1.56%), which plunged nearly 40% on Thursday after announcing that its collaborative partner GlaxoSmithKline (GSK 0.95%) has chosen not to initiate a pivotal Phase 3 outcomes study for IONIS-TTRrx in patients with transtheyretin-related amyloid cardiomyopathy. The reason ties to a Food and Drug Administration clinical hold placed on the ongoing phase 3 NEURO-TTR study in patients with transthyretin familial amyloid polyneuropathy back in April.

As my Foolish colleague Brian Orelli describes in more detail, the big issue at the moment is the unknown reason why patients in these studies are experiencing low platelet levels, and whether that'll translate over to other studies. Once data for these GlaxoSmithKline-sponsored TTR studies is in, GSK and Ionis can collaborate on their next steps. 

But my suspicion is that this drop could be the perfect opportunity to consider gobbling up this nontraditional value stock. I say "nontraditional" because Ionis is still losing money, and we typically only think of "value stocks" as companies turning a profit. I'd make an exception for Ionis for three key reasons.

Image source: Ionis Pharmaceuticals.

First, its depth of pipeline is incredible. It's currently working on more than 30 clinical studies, and even if it runs into trouble with its TTR-based molecules, or volanesorsen as Brian mentioned in the referenced article above, it has more than two dozen other ongoing studies across a broad spectrum of indications, including cardiovascular, oncology, metabolic, and severe and rare diseases. A market value of $2.5 billion seems an inexpensive price to pay for this deep a pipeline.

Secondly, Ionis has a long list of collaborative partners, Including GlaxoSmithKline. Ionis has nearly a dozen larger peers that have exercised options to license Ionis' developing drugs. Licensing out its therapies provides Ionis with a steady stream of milestone revenue, and also gives the company upfront cash infusions when completing these deals. Sharing its clinical knowledge with Big Pharma has helped Ionis build its cash on hand and avoid dilutive common stock offerings.

Lastly, Ionis' antisense drug-development platform is conducive to the rapid development of clinical-stage drugs. The antisense platform uses the past response of experimental therapies to give Ionis a good idea of how a developing therapy will work, efficacy and safety-wise, for a certain indication. In other words, Ionis could bring three-to-five new therapies into clinical trials every year.

My suggestion would be to use this recent swoon in its share price to consider dipping your toes into the water.

A stock that'll "lift" your spirits

Another company that was absolutely throttled this week, but could really provide a boost to value investors' portfolios, is Bristow Group (BRS), a global provider of helicopter services to the offshore energy industry.

As you might have correctly surmised, the plunging price of crude oil and natural gas has sent Bristow Group into a tailspin. Having just reported its fiscal 2016 full-year results, Bristol saw its full-year revenue fall 6%, to $1.63 billion. Meanwhile, adjusted EPS tumbled 62%, to $1.45. Drillers choosing to idle their rigs means less need for transports to offshore platforms, thus hurting Bristow Group's top- and bottom-line in the near term.

Image source: Bristow Group.

Yet there are reasons to believe this niche service provider could be a phenomenal buy here. For starters, there's that little part about it offering a truly niche service. There simply isn't much competition when it comes to supplying offshore drilling rigs. Thus, Bristow tends to hold comparative advantages that have allowed it to stay cash-flow positive, even throughout this recent downturn.

Another critical point is that Bristow Group has levers it can pull to further reduce its costs. Based on its fiscal 2016 round-up and 2017 guidance, it appears ready to sell 22 of its aircraft to boost its cash on hand, as well as potentially return some of its leased fleet in order to reduce its operating expenses.

This comes on top of already enacted corporate expense reductions, and the grounding of its H225 fleet earlier in May following a crash in Norway by another helicopter company. Bristow may also be able to push off new helicopter orders until later this decade, further improving its liquidity position.

The last point worth mentioning is that value-stock investors would probably appreciate the U.S. Energy Information Administration's forecast between 2015 and 2040, which calls for 4% petroleum demand growth and 50% natural gas demand growth over that time. This would imply that low crude and natural gas prices aren't here to stay for the long term -- and likely, neither is Bristow's bargain-basement price.

Valued at just eight times forward earnings, Bristow Group might be worth a look.

Flight to value

For our last value stock this week, we'll stick with flying the friendly skies, and examine why Allegiant Travel (ALGT -2.97%) could be the perfect company for your long-term portfolio.

I have to admit that I was a bit shocked to discover that Allegiant was trading anywhere near a 52-week low given its continuous success. Lately, though, Allegiant's fiscal 2016 and 2017 estimates have come down a bit, all on account of lower jet fuel costs.

Although lower fuel costs are good news for airlines, as a whole, it gives more flexibility for national and major airlines to be more competitive on ticket prices. Allegiant, being a bare-bones airline, has had to contend with some of the toughest pricing competition it's seen in more than a decade.

Image source: Allegiant. 

But there's also a lot to like about Allegiant, and it all starts with the company's pricing practices. As noted above, Allegiant uses the dangling-carrot method to attract consumers with bare-bones ticket prices. The catch is that there are a number of additional optional fees, such as a carry-on bag, checked bags, and even fees for booking through a call center, or on the Web.

The key with Allegiant's pricing model is that it encourages the consumer to take the most independent path, meaning less interaction with its agents, which is more costly for the company. This allows Allegiant's ancillary fees to flow directly to its bottom line.

Allegiant also operates one of the older fleets in the skies, with the average age of its aircraft being 21.9 years. The disadvantage of older aircraft is the fuel economy; however, that's not a big deal with crude prices hovering around $50 a barrel.

Furthermore, Allegiant has a tendency to buy its airplanes secondhand, thus avoiding the extremely high price of buying brand-new planes. This is a smart way for Allegiant to keep its costs down over the long run.

The company is also beginning to get serious about rewarding its shareholders. As noted in its first-quarter report, its board had authorized a $100 million share repurchase agreement, as well as increased its quarterly dividend by 133%, to $0.70 from $0.30. This helped push Allegiant's yield from less than 1% to a respectable 2.1%.

Trading at just below 10 times forward earnings, value investors may want to consider Allegiant Travel for their portfolios.

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Stocks Mentioned

Ionis Pharmaceuticals, Inc. Stock Quote
Ionis Pharmaceuticals, Inc.
$38.52 (-1.56%) $0.61
Allegiant Travel Company Stock Quote
Allegiant Travel Company
$142.04 (-2.97%) $-4.35
Bristow Group Inc. Stock Quote
Bristow Group Inc.
GlaxoSmithKline plc Stock Quote
GlaxoSmithKline plc
$43.98 (0.95%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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