Want to know what's even more surprising about the broader markets hitting all-time highs? The fact that it achieved this milestone while major industries such as retail, energy, and natural resources are in rough shape. While there's no guarantee that all of these stocks will get back to their former highs, a decent number of companies are trading at or near their 52-week lows and look like compelling investments.
So, we asked three of our contributors to scour the list of stocks trading near their 52-week lows and find ones they consider good investments at today's prices. Here's why they picked Nike (NKE +3.01%), TJX Companies (TJX +0.57%), and Verizon Communications (VZ 0.14%).
Image source: Nike.
A master class in brand marketing
Travis Hoium (Nike): Retail has been upended by the internet and that's thrown a lot of formerly stalwart product companies for a loop. Innovative business models from companies like Dollar Shave Club, Blue Apron, Casper, Harry's, and others are taking the legs out from under formerly stable businesses like razors, grocery stores, and even mattresses. But not every product company is being disrupted by the internet and its new business models.
Nike is one that has taken the internet as an opportunity to grow sales and margins and that's why I'm surprised it's trading near a 52-week low. You can see in the chart below that the last five years, when the move from brick-and-mortar to online retail really took hold, have been great for Nike. The company's revenue is up 42% and net income is up 91%, which are both better than Adidas and Puma (although revenue growth is slower than the smaller Under Armour).
NKE Revenue (TTM) data by YCharts.
What Nike has gotten right is that it's going straight to the consumer. It's one of the best direct marketing companies in the world, and it's been able to create buying urgency for customers with exclusive product launches on limited quantities (think retro Jordans). Direct sales to consumers cut out the retail markup, leading to higher margins, and can also lead to lower channel inventory and more knowledge about what customers really want.
With Nike now trading at just 23 times trailing earnings and a dividend yield of 1.3%, this is a stock that I think is still undervalued. As the world of brick-and-mortar retail crumbles, Nike is finding new ways to thrive. And that's the kind of adaptive company I want to own long term.
Don't discount its ability to rebound
Rich Duprey (TJX Companies): It's no secret the bricks-and-mortar retail industry is being upended by e-commerce and some once-solid chains look like they're on the brink of going bankrupt. What's surprising is that TJX Companies is tanking right alongside them. While its financial condition is nowhere near Sears Holdings or J.C. Penney, its stock has taken a hit in recent weeks and just sank to a 52-week low.
If there's ever a case for a rebound, TJX Companies would be it. The owner of T.J. Maxx, Marshall's, and Home Goods in the U.S. (and a few other brands internationally) has become the epitome of how retail needs to do business. By offering brand-name goods at everyday low prices and providing a treasure-hunt experience for shoppers entering its stores, TJX has long defied the woes that have plagued its mid-tier -- and more recently, its upscale -- rivals.
Tyler Crowe (Verizon Communications): There is a lot of pessimism baked into Verizon Communications' stock today. It's less than 5% above its 52-week low and trades for an enterprise value-to-EBITDA ratio of seven. Companies that trade for that cheap of a price are typically relegated to cyclical stocks or a business that is headed for deep troubles ahead. While it certainly isn't going to be smooth sailing for Verizon over the next few years, the strengths the company does have -- economies of scale, recurring revenue business, consistent cash flow -- should more than help it through this tough time.
As is wont to happen from time to time, the wireless communications business is in the midst of a pricing war for subscribers. Instead of competing solely on price, though, the prize today is providing unlimited data plans. Verizon was caught off guard by this trend and saw its subscriber base decline for the first time in years as customers migrated to others such as T-Mobile. One of the reasons that these competitors have been able to attract customers is that their mobile networks are now close enough in terms of download speeds and availability across the country that there isn't much drop in performance. Toss in some moves into original content -- not a core competency -- and investors are a little concerned that the sparkle has rubbed off Verizon's stock
Here's the catch, though. The wireless business is on the precipice of upgrading to 5G. Deploying that technology commercially is going to take billions of dollars over several years. This is where Verizon's scale will come in handy. Verizon's current subscriber base and cash flow will give it much more spending power to deploy this new technology, which should once again give it a leg up on the smaller competitors and attract more customers again.
It may take a while for this all to play out and, hopefully, the company won't get caught up spending too much on the content side and focus on upgrading and maintaining its wired and wireless networks. As long as this happens, Verizon's current stock price looks quite attractive.
