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.
The sun may shine once again
There's little doubt that the solar sector has been filled with a myriad of ups and downs over the previous couple of years. Many domestic names have rallied dramatically off their lows as the prospect of President Obama's energy independence initiatives have boosted project demand; and others like GT Advanced Technologies (NASDAQOTH:GTATQ), which provides equipment to solar companies in the manufacture of solar wafers, have done nothing but head lower.
At the heart of GTAT's problems, as Foolish solar expert Travis Hoium pointed out on Friday, is the simple fact that there's still too much supply out there. Specifically, Chinese producers like LDK Solar (NASDAQOTH:LDKYQ) purchased equipment hand over fist years ago when it appeared as if solar demand would be insatiable, and government subsidies endless. Unfortunately, costs for Chinese manufacturers like LDK have been rising, demand has dropped, and plenty of capacity sits idle, meaning even if business does tick higher, equipment orders from China may be minimal. LDK, for instance, boasts a ridiculous $3 billion in net debt.
The good news here is that, over the long run, supply is going to normalize, and solar companies with little capital will bow out and create opportunities for U.S. domestic solar production. GTAT still boasts $121.1 million in net cash and management expressed confidence that the second half of the year would see a rebound in its core business. Even if GTAT hits the low end of its projected 2013 guidance, it's only valued at 11 times this year's earnings, or, stripping out its cash value, just 6.5 times this year's earnings.
Put some green in your portfolio
Many of you are quite familiar with my distrust of "green" energy companies, but for one day, at least, I'm putting aside my differences and welcoming Ameresco (NYSE:AMRC) into the mix. Ameresco provides energy infrastructure improvements, solutions, and consulting to the energy industry, as well as enterprises and the government.
As you might imagine, in very similar fashion to the discussion regarding GTAT, a lull in solar demand has put a lid on Ameresco's near-term profitability. However, other factors, including the negative effects of Superstorm Sandy and the delay of its fourth-quarter earnings report in order to examine how to quantify one of its hedges (the press release actually gave me a headache), have contributed to pressuring Ameresco's share price.
Still, President Obama's tax credits offered for energy-efficient upgrades are unlikely to go away even with the sequester now ready to go into effect. As federal spending drops and enterprises look for new pathways to grow their bottom line, one avenue they're likely to turn to is energy efficiency. Although it means more out-of-pocket costs now to upgrade, many of the upgrades are tax-deductible and they result in long-term cost savings. A fourth-quarter update provided in mid-February notes that Ameresco still has a $1.5 billion backlog and, based on current Wall Street estimates, is valued at a reasonable 13 times forward earnings.
How Siri can help you
Word to the wise: If you ride Apple's coattails and Apple gets tripped up, you're going for a ride.
Nuance Communications (NASDAQ:NUAN), maker of the speech recognition software found in Apple's newer iPhone devices and in the health care market, sank like a concrete block last month after it slightly lowered its full-year sales and EPS guidance to a range of $1.76 to $1.87 on $2.15 billion to $2.2 billion in sales from its previous forecast of $1.84 to $1.94 and $2.17 billion to $2.22 billion in sales. Investors have lopped off $1.9 billion in market value since this announcement. To say I think this is a major overreaction would be the understatement of the week!
Part of the problem relates to health care upgrades, which are moving away from Nuance's health care technology to Dragon Medical speech-to-text software. While this was unavoidable, it's also a transition that's happening incredibly slow, so it isn't as if Nuance's revenue stream is going to dry up overnight. Also, greatly exaggerated stories of Apple's demise and the company cutting back on iPhone component orders has unfairly affected Nuance's share price. Siri, essentially the voice of Apple, is going to remain a mainstay in its iPhone and iPad and, last I checked, total combined unit sale estimates were only rising.
Nuance is projected to grow by an average of 19% over the next two years, yet it's only valued at nine times forward earnings. Can you say "Hello, Mr. Opportunity"?
This week's theme is all about inference. It may not be blatantly obvious that GTAT and Ameresco are going to benefit from Obama's energy initiatives, or that Nuance is going to come out smelling like a rose even with Apple's woes, but the tools for success are clearly visible in all three cases.