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 Internet monopoly
I hope you're sitting down because I'm breaking a bunch of my normal investing rules here with this first risky pick, Gogo (NASDAQ:GOGO).
Gogo only made its debut on the Nasdaq Composite about six weeks ago, but it's been met with stiff selling since it began trading. To some extent the selling does make sense, as Gogo has yet to prove it can turn a profit and has seen expenses balloon as it builds out its Wi-Fi-capable infrastructure. In addition, Gogo is always going to be at the mercy of the success of the airline industry, which has historically not been very encouraging. A tough economy could yield weaker traffic and less demand for Gogo's broadband services.
As for me, I see big things for this high-in-the-sky Internet monopoly. Gogo currently has 10-year partnerships in place to provide in-flight Internet with Delta Air Lines, American Airlines, Virgin America, US Airways, Alaska Air, Frontier, and AirTran (now owned by Southwest Airlines). The earliest of these locked-in contracts doesn't even expire until 2018, and it already has approximately 85% of all commercial flights in the U.S. hooked up to run its Wi-Fi system.
Best of all, it's finding success by partnering up with Iridium Communications (NASDAQ:IRDM), best known for its vast array of satellite communications coverage around the globe, to sell its Gogo Biz to business aviation clientele and distance its reliance on commercial airlines.
With revenue growth expected to have jumped by more than tenfold between 2009 and 2014, and a handful of long-term contracts, I feel Gogo is in a uniquely advantageous position to profit in a big way from airline customers.
Reasons to be "chipper"
Last week had to be among the roughest weeks to be a Broadcom (UNKNOWN:BRCM.DL) shareholder in six years, with its stock plunging about 19% after offering a sales forecast for the upcoming quarter that fell short of Wall Street's estimates. Despite reporting an adjusted second-quarter profit of $0.70 per share ($0.01 better than expected), its sales range of $2.05 billion to $2.20 billion next quarter, compared with an expected $2.25 billion, has many investors worried that Broadcom's customers may be choosing to switch to rivals like Qualcomm (NASDAQ:QCOM). What I'm here to say is that those concerns are real, but the level to which shareholders reacted to the downside is largely overstated.
There is a good side, a steady side, and a downside to Broadcom. The downside is that it's pretty much been left in the dust with regard to delivering newer connectivity technology in 4G LTE-capable wireless devices. It does have deals in place with Apple and select Samsung models, but it predominantly dominates in lower-priced and older smartphone models. To that end, Broadcom has decided to instead try to compete with Qualcomm in baseband processors, which, if my arm were twisted, I don't suspect will end well.
But is that really bad news? Actually, it could be a blessing in disguise as it gives Broadcom ample opportunity to dominate lower margin, but still high-demand, connectivity products in 3G devices in emerging markets around the world that don't have 4G-capable infrastructure yet. Theoretically, it could have a decade or more of dominance and hefty cash flow generation left from overseas demand.
The other factor here is its steady side, with Broadcom being the leading manufacturer of chips that run satellite TV boxes. Americans have shown no slowdown in their TV-watching habits, and this acts as a steady and predictable source of revenue for Broadcom.
With close to $780 million in net cash, a yield of 1.6%, and a forward P/E that's shrunk to less than 10, I can't help thinking it's an intriguing bargain at its current price.
It's sometimes amazing how quickly a company can go from hitting a new all-time high to tracking along just a few percentage points above a 52-week low. For cellular tower operator American Tower (NYSE:AMT), it predominantly has to do with a scathing report from noted short-selling firm Muddy Waters, which accuses American Tower of misrepresenting its actual purchase price of some 666 wireless towers in Brazil, and questions recent insider sales by directors of the company.
Personally, this seems like a significant amount of hypersensitive trading, given that American Tower fired back at Muddy Waters defending its accounting, and also given that, among its peers, American Tower is the most financially sound, and the only tower company capable of turning a regular profit.
Because investing in cell towers requires so much capital, American Tower chose to become a REIT in early 2012 to take advantage of the many tax advantages afforded to REITs. In return, shareholders receive 90% of more of the company's profits in the form of a dividend -- a win-win for both parties involved.
But what doesn't make an iota of sense to me since American Tower is statistically the only profitable wireless tower provider is why anyone would consider betting against it as the U.S. wireless communications industry is currently undergoing a period of intense consolidation and 4G LTE infrastructure build-outs. The demand for antenna space is soon going to spike, and American Tower is set to reap the rewards of that expansion. I'd strongly suggest giving American Tower another look.
This week's theme is all about finding niche-dominant companies that are recently down on their luck. Gogo and its in-flight Internet dominance, Broadcom with its 3G connectivity market share, and American Tower with its lion's share of wireless antenna towers, make all three an intriguing buy candidate moving forward.
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, and recommends, American Tower and Apple. It also owns shares of Iridium Communications and Qualcomm, and recommends Southwest Airlines. 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.