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.
Things really aren't that fishy
Without question, there can be quite a variance in riskiness to these buy suggestions. I would certainly place this one among the riskier of my CAPScall bets.
Today's first rebound candidate is the highly controversial Amarin (NASDAQ:AMRN). Amarin's lead drug is Vascepa, a fish oil capsule that was approved last July to treat hypertriglyceridemia (i.e. high triglyceride levels). Since its approval, though, shares have lost about 60% of their value as buyout rumors surrounding the company have not come to fruition, and as competition in the sector builds.
Specifically, investors appear unnerved by AstraZeneca's (NYSE:AZN) purchase of Omthera Pharmaceuticals in order to get ahold of its late-stage clinical fish oil drug, Epanova. Many investors projected Amarin to be the takeover candidate, and are even more disturbed that Omthera was purchased for about half Amarin's total market value and now has a heavyweight controlling its lead drug in AstraZeneca.
Despite this, Amarin's Vascepa could be on the verge of expanding its approved indications to patients with high triglycerides and mixed dyslipidemia. If approved, this would greatly expand Amarin's target audience well beyond the some 4 million people it can currently target and could vault its peak sales estimates even higher.
The other factor making Vascepa particularly encouraging are the incredibly high levels of obesity in this country. It's still quite debatable whether or not fish oil has a positive benefit on overall cardiovascular health (depending on the study that is), but millions of people and physicians find its benefits quite tangible. As long as we remain the most obese developed country in the world, fish oil products should remain in high demand.
Why buy when you can rent?
Please forgive me for beating a dead horse twice in the same week, but residential-REIT Equity Residential (NYSE:EQR) has absolutely no business trading near a 52-week low.
The sell-off over the past week has been more or less merciless, dragging every sector down with it as nervousness over the Fed's imminent paring back of its $85 billion monthly bond-buying program grows. The housing sector has been hit particularly hard as the nervousness has led to rapidly rising lending rates which are expected to drastically slow down mortgage applications. But, what's not good for the goose in this case is excellent news for the gander.
Equity Residential, a rental property real estate investment trust, will benefit in a big way from rising interest rates as it will dissuade prospective homebuyers from taking the plunge. Instead, it'll push buyers who are on the cusp of buying back into a rental market that has very few vacancies to begin with. The end result is that Equity Residential is able to command some of the best pricing power it's ever had, ultimately flowing to its bottom line and eventually to shareholders as a hefty dividend.
Another big factor to consider is that Equity Residential and AvalonBay Communities (NYSE:AVB) both recently combined to purchase Archstone. Under normal circumstances, residential-REITs like Equity Residential and AvalonBay would go into debt and build new communities, benefiting from the build-out years down the road. Archstone already has a well-established portfolio of rental properties, meaning the transition from purchase to profit is shortened dramatically. Equity Residential took a little over a 26% stake in the Archstone rental portfolio with AvalonBay picking up the remainder.
With a yield approaching 3%, and recently highlighted as a great dividend you can buy right now, I see no reason why Equity Residential should be this cheap.
Nothing could be (re)finer
Like the previous companies, the dismal performance of the market over the past week has ransacked even the oil refining sector and names like PBF Energy (NYSE:PBF). Refiners come under pressure anytime the prospect of lower demand rolls around, so with China's credit crunch scaring investors under the covers, it's not a big surprise to see PBF shares selling off. The company's approximately 16 million share secondary offering earlier this month didn't help its cause, either.
But I'm here to tell you that this could be the most intriguing value among the refining sector. As my Foolish colleague and energy expert Aimee Duffy has pointed out previously, PBF Energy has refineries in the mid-Continent and on the East Coast where crack spreads are often weaker than the sector average. Surprisingly, PBF's spreads were better than many of its peers during the first-quarter in both regions, yet management considered it a challenging quarter.
Where PBF offers investors a really intriguing value is in its expansionary efforts on the East Coast and the mid-Continent. Specifically, crude-by-rail deals signed with Burlington Northern Santa Fe and Norfolk Southern in the mid-Continent should allow for increased deliveries and quicker per-day barrel output .
On a valuation basis, there are few refiners as inexpensive as PBF which is trading at just five times forward earnings and less than last year's free cash flow! This sort of valuation would be realistic if the company were in distress or oil were at $30 a barrel, but make absolutely no sense based on the fact that PBF is growing refining capacity and orchestrating oil-by-rail deals with regularity. With nearly a 5% yield, this is a refiner that is certainly worth a deeper dig.
This week's theme is all about whether or not things are really as bad as investors' emotions make them out to be. Amarin clearly has competitive concerns, Equity Residential has misconstrued homebuilder associations to deal with, and PBF has to contend with tough East Coast crack spreads. Overall, though, all three companies are on solid footing for the future, and the thesis behind owning each one remains intact until further notice.
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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