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.
A secure rebound candidate
Web, data, and email security solutions provider Websense (UNKNOWN:WBSN.DL) has had a year to forget, with its shares down 25% year to date. Based on its most recent quarterly report, revenue actually dropped 2% as double-digit sales gains internationally were more than offset by fewer upgrades for existing customers. The good news is that I feel it's about to turn those frowns upside down.
What investors often forget is that security software companies have two major factors working in their favor. First, Web and data security isn't an optional service these days -- malware and viruses are lurking everywhere and individuals and enterprises alike are equally vulnerable. Second, most security revenue is recurring since consumers often prefer a set-it-and-forget-it approach. This often leads to regular and predictable cash flow, which allows for good business visibility.
Websense, in my opinion, is the perfect merger/takeover candidate within the sector. Both Symantec (NASDAQ:SYMC) and Intel's (NASDAQ:INTC) McAfee could use the international exposure and added customer base, especially with newer players like Palo Alto Networks (NYSE:PANW) bursting onto the scene and moving away from a software-based protection and encryption system to a big data center system that's updated almost entirely on its end. With Intel focused on the hardware side of its cloud business, Symantec and Websense could wind up being two peas in a recurring revenue pod. With the stock at just nine times forward earnings, my eyes are on Websense.
In royalty trusts... we trust
Oil and gas royalty trusts are right up there with Websense in suffering through a miserable year. Decade-low natural gas prices hurt dividend payouts, and a stalemate between Democrats and Republicans in Congress may result in tax hikes, including a rise in how much tax investors pay on dividend earnings. It's therefore not hard to understand why SandRidge Mississippian Trust I (NYSE:SDT) has been trading near a 52-week low lately.
The good news (as I try to shower you with nothing but good news in this weekly column), is that investors may have overestimated just how negative the drop in oil and natural gas prices will be on this trust's payout, as well as the negativity surrounding SandRidge Energy (UNKNOWN:SD.DL) CEO Tom Ward, who may not have exhibited the best corporate governance over the years. With a diverse portfolio of oil and gas assets, SandRidge's production should only head higher from here. In addition, even if its payouts shrink to more manageable levels, I'd predict a yield in excess of 10%. It's time we stop giving these dividend workhorses a bad rap and realize their incredible value.
The king of all dividends
ATM and voting machine maker Diebold (NYSE:DBD) may not offer the highest dividend in the land at 3.8%, but with a stock market-best 59-year-streak of annual payout increases, it takes the cake as the market's king of dividend stocks.
Diebold cut its full-year earnings estimates in October, citing that reduced spending from regional banks and delays in spending in Brazil pushed orders out to upcoming quarters. While this is disappointing, I have to agree with my Foolish cohort Travis Hoium, who astutely noted that these are merely delays, not cancellations.
Diebold's business is very much reliant on a rollout into international markets, specifically Latin America, and it has the cash and flexibility that many of its peers just don't. At just 12 times forward earnings, the price is reasonable, and it's not hard to expect that 2013's figures will outperform expectations once Brazil does accept delivery of new voting machines. This is one dividend company you can definitely count on, and it's a great pick-up near a 52-week low.
I'm just going with good old-fashioned common sense this week. We have an ATM maker with a 59-year streak of raising its dividend, a well-diversified, high-yielding royalty trust whose production is ramping up, and a relatively cheap security company in a recurring-revenue near-necessity business. Thank you, and good night!
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.
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