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.
How many times now have I come down negatively on cloud-computing valuations? Well, today I have a surprise, because I found another very reasonably priced software-management and cloud-computing specialist that looks like it could be set up to surprise the market.
If you recall, I highlighted OpenText's rival, J2 Communications
Warning! Warning! Speculation alert!
Normally I spend my time highlighting deeply undervalued or underappreciated companies in this weekly column, but few, if any, are in such deep distress that the "b" word -- bankruptcy -- would even be a consideration. That's not the case with the struggling Alcatel-Lucent
However, as I highlighted last week as well, Alcatel-Lucent may have a few tricks up its sleeve. The company does have 28,000 patents that it could use to raise cash, and as we've seen from recent patent sales, there could be a wide variance in value on that patent portfolio. Also don't forget that major telecom companies are relying on Alcatel-Lucent's networking and optical products to power their expansion. Verizon Wireless (a joint venture made up of Verizon and Vodafone Group) is relying on Alcatel-Lucent to manage its mobile 4G data growth while France Telecom
There are significant risks here, but with remaining net cash you could break the company up and net a nice return. Investors are going to take notice of that, and this could be a doozy of a turnaround story in 2013.
On the dot
Let's stick with the theme of being aggressive this week and take a look at micro-cap storage-network solutions specialist Dot Hill Systems
Dot Hill hasn't turned an annual profit since 2005, so this is definitely another gamble on my part, but I think it's turning the corner. The company is finally spreading around its sales among numerous customers as opposed to just a few and therefore isn't subjected to wild revenue swings as it had been in the past. Also, as an original equipment manufacturing supplier, its costs are relatively fixed. What this means is the company and shareholders know what it needs to do to cut expenses and maximize margins (which rose by 390 basis from last year and from the first-quarter sequentially). And, as you well know, I love cash. Dot Hill is valued at only $61 million but has $41 million in cash with no debt. This means for roughly $20 million you're getting a networking-solutions company that's on the fringe of profitability that should grow sales by 9% in 2012.
Dot Hill isn't my stereotypical buy candidate, but it offers a compelling valuation thanks to its cash and the actions management has taken to spread out its revenue.
This week it's all about stepping outside the box. These three stocks are possibly the most aggressive trio I've picked since I began picking outperforms on a weekly basis, but a mixture of cash, patents, and growth makes all three seem significantly undervalued in my eyes.
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!
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 France Telecom and Costco. Motley Fool newsletter services have recommended buying shares of OpenText, France Telecom, Vodafone Group, and Costco, as well as writing covered calls on OpenText. 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.
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