Just as we examine companies each week that may be rising past their fair value, we can also find companies potentially trading at bargain prices. While many investors would rather have nothing to do with companies tipping the scales at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to the downside, just as we often do when the market reacts to the upside.
Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.
Not playing around anymore
The video and online gaming sector is highly competitive, and pricing power stinks for the most part. As gaming shifts further from traditional consoles onto mobile and PC platforms, bricks-and-mortar retailer GameStop
Why invest in GameStop if sales are stagnant? First, the company understands the shift toward online gaming and now distributes PC games in addition to traditional console games and could push further into the digital market. Second, the ability to trade in used video games for credit gives the company a chance to hook customers for life and provides high-margin added growth. Finally, it's still very profitable. By trimming the fat and operating within its means, GameStop has accrued $329 million in cash, has zero debt, and has averaged $405 million in free cash flow over the past five years.
All of this adds up to a company that has become an income investor's dream with the initiation of a $0.15 quarterly dividend in February. Its current yield of 3.6% places it among the tech sector's elite yielders, and its payout ratio remains extremely subdued at just 19% of expected 2012 EPS.
By the looks of STMicroelectronics
STMicro is cheap, but for two primary reasons. First, it's highly dependent on economic cycles to drive its growth. What that means is it's not a stock you want to hang on to for 10 years at a time. It's primarily a good one-to-three-year buy-and-hold when the chip sector is cycling higher. Secondly -- and this builds on reason one -- sales have been stagnant since 2006.
In spite of this, STMicro has strong ties to Apple and is one of the leading suppliers of microelectromechanical systems, or MEMS, in the world. That niche, combined with its $770 million in net cash, its greater-than-7% dividend yield, and the fact that it's valued at just 55% of its book value, makes it a very intriguing value play.
Pedal to the metal
You'd best sit down for this one, because I'm about to recommend... drum roll, please... a U.S. car company! The bankruptcy of General Motors
When GM declared super-duper bankruptcy in 2009, the company had more than $90 billion in net debt. Now, just a few short years later, GM has a net cash position of $17.2 billion (and a market value of only $30.4 billion). Ford, on other hand, declined federal assistance during the downturn, but is still crippled under $77.4 billion in net debt.
There are also recent growth figures that show GM is performing considerably better than Ford. In June, GM's total unit sales rose by 15.5% compared to Ford's, which rose 7.1%. Granted, Ford has turned in a higher aggregate unit-sales increase year to date, but that comparison could be switching and swaying in favor of GM now that it's worked out the "kinks" with the Chevy Volt. With the stock at less than five times forward earnings, I'm going to give GM another chance, but I'm putting it on a very short leash.
Another week of big names hovering near new lows despite the market's overall resistance to negative news. All three offer deeply discounted value, are well-known names within their niche, have strong net cash positions, and (minus GM) pay a premium dividend (though give GM a few more years and it will be there, too).
In the meantime, consider adding these potential winners to your free and personalized Watchlist, and get your own personal copy of our special report: "The Motley Fool's Top Stock for 2012." Find out which company our chief investment officer has dubbed the "Costco of Latin America." Best of all, this report is completely free, so don't miss out!
Also, read our latest Fool analysis on Ford and Apple. Our premium reports give you a full year of updates to keep you apprised of what's happening in the auto and hardware sectors. Find out how Ford could beat GM and whether Apple will keep dominating by reading these reports today.
Fool contributor 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 GameStop, Apple, Ford, and Costco. Motley Fool newsletter services have recommended buying shares of Apple, General Motors, Ford, and Costco, as well as writing covered calls on GameStop, creating a bull call spread in Apple, and creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 that's always on the lookout for a good deal.