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.
An inexpensive cloud play
The words "inexpensive" and "cloud" rarely find their way into the same sentence when I'm discussing cloud-computing companies, but that's precisely the case with CA Technologies (NASDAQ:CA) -- better known previously as Computer Associates.
The fiscal cliff drag in the U.S., where CA accounts for nearly two-thirds of its revenue, coupled with weakness in Europe and a slowdown in Asia, dragged down enterprise solutions by 2.4% and crushed domestic bookings by 25% in its most recent quarter. Even with a tepid sales forecast calling for a 1% to 3% decline in sales next year, I think you have to begin looking at CA as an incredible value play.
At some point, U.S. regulators are going to come to some sort of fiscal cliff agreement and businesses in the U.S. are going to spend once again. New cloud-based applications are being introduced by CA on a regular basis, and this gives the company a better chance at outdueling Hewlett-Packard (NYSE:HPQ) which is too busy cutting 27,000 jobs and various other expenses to focus its attention on its peers in the cloud space. Furthermore, CA's net cash position of $800 million and its 4.6% yield are delectable in comparison to HP's $17 billion in net debt and recent $8.8 billion write-off. CA Technologies is in better shape than investors are giving it credit for, and it appears set to resume its uptrend this year.
I'd like to think great minds think alike, which is why I was nodding my head in agreement the entire time I was reading Foolish colleague Rich Duprey's analysis of Midwestern bank FirstMerit (NASDAQ:FMER).
FirstMerit agreed to purchase Citizens Republic Bancorp (NASDAQ:CRBC) in September for $952 million in what should be the beginning of a consolidation wave for small and midsize regional banks. Investors have punished FirstMerit for taking on Citizens' $345 million in TARP payments still owed and gambling on a bank that's been losing money regularly on an annual basis since the recession. For FirstMerit, it sees the opportunity to broaden its brand image, branches, and conservative fiscal management across five states and deliver huge savings and big profits by 2014. In fact, you have to go back all the way back to 1999 to find the last time that FirstMerit reported a quarterly loss.
With the Midwest bank trading at just 95% of book value despite increases in its tangible common equity ratio and return on assets in its most recent quarter, and the fact that a big boost in deposits and profits is right around the corner, topped off with a 4.5% yield, I'd say FirstMerit looks like a safe chance to rebound going forward.
In tablet we trust
It's brutally evident that enterprise customers in the software sector have held back on orders until after the new year due to limited business clarity. That shouldn't, however, keep you from diving into graphics and processing behemoth NVIDIA (NASDAQ:NVDA) without many worries.
In year's past, NVIDIA's sales were wholly reliant on the gaming and PC industry, where it still maintains its graphics card dominance. Considering that I expect a big rebound in PC sales in 2013 as lighter and newly designed laptops move consumers to action, NVIDIA's graphics business should rebound.
More important, NVIDIA's new line of Tegra processing chips have found their way into tablets offered by Google and Microsoft, into some Android-based smartphones, and into the infotainment system built into the Tesla Motors model S sedan. The key point here is that NVIDIA's Tegra chips, which had been a relative afterthought next to Qualcomm's (NASDAQ:QCOM) Snapdragon chips, are finding their way into non-PC devices of all price points.
Furthermore, NVIDIA has $5.46 in net cash per share and has averaged $586 million in free cash generation over the past three years. At this pace, NVIDIA will have its current value in cash in less than seven years. As tablets and smartphones become cheaper, NVIDIA's chips may also lose some of their pricing premium, but the sheer volume of sales should more than make up for that. NVIDIA looks like an extremely smart long-term play.
This week's theme revolves around yelling, "Scoreboard, baby!" CA Technologies, FirstMerit, and NVIDIA all have immaculate balance sheets and cash flow generating ability. They also pay sector-trouncing dividends, which make them long-term winners in my eyes.
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 FirstMerit, Google, and Qualcomm. Motley Fool newsletter services have recommended buying shares of Tesla Motors, NVIDIA, and Google, as well as writing puts on NVIDIA, and creating a synthetic covered call position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.